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EXTERNAL FACTORS INFLUENCING THE PERFORMANCE OF AMAZON

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Executive summary
Amazon Company is governed and works on four key principles: Obsession with customers,
concentration on competitiveness, being passionate about innovation and being committed to
guaranteeing quality in operations and long-term strategic thinking. At the same time, the
company operates within an external environment that is usually uncertain. This environment
comprises a variety of factors that influence the performance of the company both positively and
negatively. Some of the key factors of the external environment influencing the company's
performance include the political environment, knowledge management, technological factors,
social factors, economic factors and strategic management. Political factors range from factors of
political stability to factors involving regulation. Economic factors include changes in exchange
rates, changes in taxation, supply and demand and changes in the cost of labour. Aspects of
knowledge management influence the efficiency and productivity within the company while
social factors play a significant role in the management of the businesses, influencing everything
from the selection of products and the channels through which they will be marketed to the
development of management and operational patterns and the ultimate success or failure of the
organization. Amazon being the backbone of technology is significantly impacted by technology
and has to remain innovative and deal with a wide range of technological issues such as cyber
security threats. The company is also governed by strategic management which ultimately
defines the company’s success. This report has outlined several recommendations that the
company can implement which will help in navigating in a highly uncertain environment.
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Table of Contents
1 Introduction.........................................................................................................................................4
2 About Amazon Corporation.................................................................................................................4
3 External Factors Impacting Amazon Operations.................................................................................5
3.1 The Political Environment...........................................................................................................5
3.2 Knowledge Management.............................................................................................................6
3.3 Economic Environment...............................................................................................................8
3.3.1 Currency Exchange rate changes.........................................................................................8
3.3.2 Changes in Taxation............................................................................................................9
3.3.3 Changes in Supply and demand...........................................................................................9
3.3.4 Cost of Labour...................................................................................................................10
3.4 Social Factors............................................................................................................................10
3.5 Technology................................................................................................................................11
3.6 Strategic Thinking.....................................................................................................................12
4 Conclusion and Recommendations....................................................................................................13
5 References.........................................................................................................................................15
6 Appendix...........................................................................................................................................19
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1 Introduction
All around the world, organizations are surrounded by an environment that has a lot of
opportunities and threats. This environment otherwise referred to as the external environment
comprises a variety of factors whose existence impacts the behaviour and performance of
organizations. These factors can directly or indirectly affect an organization. They can have an
impact on business operations, personnel and revenue. The external environment changes
constantly in a manner that is way beyond the control of an organization. However, executives
and managers play a significant role in tracking the changes and minimising their consequences.
Some may even influence worldwide developments. Given that organizations regularly deal with
a wide range of uncertainty, each with a different impact, managers use established structures
and procedures to overcome obstacles. These are made to lessen ambiguity and support
deliberate decisions to control the remaining risks. The purpose of this report is to provide an
account of the impact of the external environment on the performance of Amazon corporation.
The report begins by providing an understanding of Amazon company and then continues to
explore a variety of external factors and their influence on the company and how the company
can respond to these factors to improve performance. These factors include the political
environment, knowledge management, technological factors, social factors, economic factors
and strategic management.

2 About Amazon Corporation

Amazon is a multinational technology company based in the US. The company operates several
worldwide marketplaces. These include the US, UK, Australia, Brazil, Canada, and Spain just to
mention a few. Generally, the company's operations span many countries throughout the world.
The company was established in 1994 as an online internet bookstore and presently, it is one of
the most successful e-commerce companies. The company offers a wide range of products and
services such as retail goods such as books, apparel, consumer electronics, beauty products and
so on, digital content, and cloud computing among others (Amazon, 2022). When it comes to its
customers, partners, and developers, Amazon has a tremendous appeal because it attracts all
three parties together, allowing the corporation to achieve more success. The company's
popularity and profitability have grown as a result of its excellent partnerships with well-known
brands. However, the company's external environment poses problems and has an impact on
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performance. The macro-environment of Amazon is shaped by a variety of external factors,

including political, economic, environmental, technological, social, and legal aspects. These
aspects are significant because they influence how the business functions and each must be
understood for the business to compete in the retail and e-commerce industries.

3 External Factors Impacting Amazon Operations

3.1 The Political Environment
Political considerations have an impact on Amazon Company, and this model examines
government activities, their impacts on enterprises, and their control over macro environments.
Amazon, like any multinational company, is affected by political factors both positively and
negatively. Amazon's success in the e-commerce sector is tied to a wide range of political
variables beyond the company's control particularly political stability, government regulation and
pressure groups. The company for example has been facing pressure from various groups. In
addition to this, there have been several regulatory issues that the company has faced over the
past years. In 2021, the Strategic Organizing Center (SOC) filed a complaint with the Federal
Trade Commission alleging that the company employs deceptive search and advertising practices
thus misleading customers. These practices were noted to be anti-competitive (Strategic
Organizing Center, 2021). SOC is not the first group to allege this anti-competitive practice by
the company and other groups have been piling pressure on the company. In the EU, Amazon
has encountered harsh penalties in recent times from EU regulators. The company was fined
about $1.29 billion by Italian antitrust regulators for prioritizing third-party merchants that use its
shipping and logistics services in 2021 (Satariano, 2021). In the US, several laws have been
introduced that seek to change the way companies such as Amazon operate and dominate the
marketplace (Feiner, 2022). In 2019, the Indian government introduced regulations that
prohibited Amazon from selling products of companies that had equity stakes. The Indian
government has since been introducing new regulations that aim to curtail the dominance of the
company in the country.

Political stability is another element that has affected the company. Recently, there has been
political instability in regions where the company does business and this has affected the
company's operations. For example, in March 2022, the company suspended the shipment of
retail products to customers that are based in Russia and Belarus. Furthermore, the company
stopped providing access to its streaming services in Russia. This is a result of the invasion of
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Russia in Ukraine (Retail Insight Network, 2022). The war has since cost the company several
customers and consequently revenue. Besides losing a significant number of its customers and
revenue, the political instability has resulted in a notable decline in the company's stock price.
For the past 6 months, for example, the company's share price has reduced by over 30% (see
appendix 1). Political instability generally results in the volatility of stock prices. According to
the study by Irshad (2017), there is a negative relationship between stock prices and political
stability. Unstable political systems result in a decline in stock prices.

Generally, Amazon has been facing several legal disputes, antitrust challenges, political
instability issues and union issues in recent times and these have affected the company’s
performance in some way. The political environment affects the performance of all firms, no
matter how big or small they are. However, politics is also a part of other external risks, and the
political environment is often thought to be out of the management's control, which makes it
hard to define, predict, and align goals (Mark and Nwawu, 2015). For a business to run well and
efficiently, it also needs to be in a calm and pleasant environment. It is commonly considered
that political stability leads to corporate stability, whereas political instability fosters business
instability. Every firm that wants to flourish must, by necessity, pay attention to the political
climate in which it operates. As Mark and Nwaiwu (2015) note, a company's exposure to
political risk can be thought of as a measure of the likelihood that political events will impede
the company's pursuit of earnings through either direct impacts or indirect impacts. Thus,
political risk is analogous to an expected value, in that the probability of a political event
occurring can diminish the attractiveness of investment by lowering expected returns. Amid the
political issues that the company encounters, more often than not, the company adopts a chaordic
systems thinking where the management utilizes a framework that involves seeing and
interpreting the reality based on chaotic and complexity principles (Rosenhead et al 2019).
Generally, the management is open to accepting ambiguity, interconnections, unpredictability,
learning and adaptation to change.

3.2 Knowledge Management

Organizations thrive in an environment that is in a perpetual state of change; thus, they must
adapt to these changes and continuously develop themselves. One of these approaches is
knowledge management which is a key ingredient in creating sustainable competitive advantage.
Knowledge management is the strategic use of an organization's comprehensive knowledge and
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"know-how" to increase market share and generate profit. The value of an organization's
knowledge is priceless, and it is created by collecting, storing, distributing, and directing all of its
knowledge. Various studies have noted that knowledge management approaches influence
organization performance in a variety of ways, including knowledgeable personnel, improved
organizational decision-making, enhanced client service offerings, decreased operational
expenses, and enhanced organizational competitiveness (Muthuveloo, Shanmugam, & Teoh,
2017, Namdarian, Sajedinejad, & Bahanesteh, 2020) It is important to note that inability to build
and cultivate a culture that encourages the learning, sharing, modification, and improvement of
knowledge within an organization is one of the most significant obstacles to knowledge
management.

Amazon’s knowledge management practices have a substantial impact on its operations.

Knowledge management provides the scope of enhancing the business capacity to generate
revenue and the organization’s sustainability in the long run (Castaneda, & Cuellar, 2020). More
often than not, Amazon is usually involved in undertaking mergers and acquisitions of a range of
both small- and large-scale businesses through favourable and positive knowledge management.
Along with encouraging its internal and external team to successfully share expertise, Amazon
can effectively address the key requirement for knowledge codification, which not only serves to
ensure successful business operations but also helps to create widespread awareness. The
management of Amazon can efficiently make decisions about its operating structure in real-time
with the aid of knowledge (Pérez and Smith, 2019). It aids organizations in effectively carrying
out advantageous business operations in real-time and seizing opportunities without losing them
to rivals.

With the aid of effective knowledge management, Amazon's operating structure is known for its
innovation and creativity. Employees are given the right scope for business development and
engage in creative business ventures that give the company a competitive edge, guarantee best
practices, and lower employee turnover. In particular, Amazon has been at the forefront of
sponsoring innovative endeavours that have transformed the world in some way (Mergel, 2016).
The creation of the prime option on the company's platform, for instance, has enabled clients to
interact with products from other organizations that operate in the same industry. Amazon has
successfully attained a competitive and favourable position in the global consumer market by
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utilizing knowledge management approaches efficiently. Some of the outcomes of knowledge

management within the company are highlighted below,

1. By assessing the need through excellent knowledge management, the company has
effectively grown its business operations in developing countries.
2. By efficiently analyzing consumer demand and designing a user-friendly website,
Amazon was able to capture more than half of the U.S. e-commerce market (Athaydeet
al., 2017).
3. Amazon has filed more than 49 patents recently to meet increased demand for its
products and services.
4. The organization has effectively increased its sales revenue as well as its profitability

An important aspect of any knowledge management system is the role it plays in assisting
businesses in meeting their consumers' demands and expectations. Inefficient operations are
mitigated by the knowledge management system's facilitation of teamwork and communication,
as well as the resulting improvement in trust between departments and teams. It streamlines
operations and helps the business to take the right next step (Li et al., 2020). The management
system provides clear guidelines for providing excellent service and assistance to consumers,
demonstrating that the organization is prepared to respond to their needs.

3.3 Economic Environment

The business environment of organizations is determined by a wide range of factors that operate
with varying intensity. According to (Rahman, & Singh, 2014) some of the most important
elements are economic, political, legal, technological and cultural conditions. The
macroeconomic environment is one of the key factors affecting business activities. The various
economic factors play an important role in shaping the business environment (Hudáková &
Masár, 2018). For the E-commerce business, for example, economic factors define the output.
These factors include inflation, interest rates, labour and government monetary policies, and
demand and supply which impact the levels of production and the demand for goods and
services. The factors discussed below impact the performance of Amazon.

3.3.1 Currency Exchange rate changes

There are various reasons for changes in exchange rates. One key factor is the international
balance of payments which is the changes in foreign exchange supply and demand due to trade
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deficit and surplus which result in fluctuation of the exchange rate. Another factor is as a result
of inflation (Maurya, 2017). As per the 2021 Amazon annual report, net sales from international
business accounted for 27% of the company's consolidated revenue (Amazon, 2022). Therefore,
changes in foreign exchange rates is one of the risk factors for Amazon. Fluctuation of foreign
exchange rates may positively or negatively affect the company. For example, as per the 2021
annual report, exchange rate fluctuation in 2021 resulted in an increase in international segment
net sales by $3.0 billion compared to the previous year. Also, in 2020, fluctuation in foreign
exchange rates throughout the period in comparison to rates in effect in the previous year
resulted in a decline in international segment net sales in quarter 2 by $ 446 million compared to
quarter 2 in 2019. This shows that Amazon Amazon is affected by exchange rate fluctuation in
several ways. Volatile exchange rates for example will impact the company's value of assets and
liabilities denominated in foreign currency. Operating profit as well can be impacted. In addition
to this, the cost of imports may increase, products become increasingly competitive, the cost of
investing in overseas operations may increase and the cost of serving foreign currency debt may
increase generally affecting the company’s performance (Kelilume, 2016).

3.3.2 Changes in Taxation

In any economy, tax rates affect the prices of goods and their sales and this impacts the
performance of businesses. In recent times, various tax policies have been introduced and these
have impacted Amazon. In a study conducted by Baugh, Ben-David and Park (2014), various
states in the US introduced a policy that required Amazon to collect sales tax during checkout.
The researchers noted that as a result, Amazon online purchases in the states that introduced the
laws reduced by 9.4%. The researchers outline that spending generally reduced among Amazon
shoppers. In 2017, the US president proposed that internet retailers should collect taxes from
their customers (Cohen, 2017). Such laws have since been implemented and these affected the
company. Afonso (2019) in his study on the impact of Amazon tax on local sales tax revenue
noted that Amazon tax increased the company’s revenues

3.3.3 Changes in Supply and demand

Supply and demand greatly influence the profit margins of companies. Fundamentally, when
supply exceeds demand for goods or services, prices fall and vice versa. Amazon has been
affected by changes in demand and supply over time. In 2020 after the onset of the COVID-19
pandemic, the demand for online shopping increased significantly throughout the world. In the
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first nine months of 2020, the company reported a 70% increase in earnings. Furthermore, as per
a study by New York Times, the company had a nearly 200% rise in profits (Takefman, 2021).
The pandemic saw the company expanding its fulfilment infrastructure by 50% in 2020 with an
additional 250,000 employees. Demand for Amazon web services also increased in 2020 with
the division growing by 29% and accounting for 12% of the company’s revenue (Takefman,
2021). This shows how demand can have an impact on the performance of the company.

3.3.4 Cost of Labour

The e-commerce and cloud-computing company is also influenced by the cost of labour.
Amazon's thin profit margin of roughly 7.1% in 2021 and 4.5% in the first quarter of 2022 is
made possible by the company's ability to keep costs down in areas such as human resources
(Macrotrends, 2022). In 2020, Amazon paid its 1.3 million employees a median income of $
29,007, up by $159 from the previous year. In contrast, the median pay at Google is $ 133,066
and at Facebook, it is $ 124,000 (Dailey, 2021). The e-commerce giant's earnings are in jeopardy
as a result of the rising cost of labour, which will have serious consequences for the company's
future expansion. Cost of labour is an external economic problem that Amazon's upper
management has decided to address proactively rather than reactively. In 2018, the company
raised its minimum wage for all US employees, including seasonal workers, to $15.00 an hour.
The company in recent times has faced labour issues. Employees are seeking to unionize with the
aim that the company would increase their way wages and improve the working conditions
(O'Donovan, 2022). Such aspects can affect the company's profits and give the workers a greater
voice in decision-making.

3.4 Social Factors

Every facet of a multinational corporation's operations differs while conducting business in a
foreign country due to differences in society and culture. Indirectly, societal and cultural factors
play a significant role in the management of businesses, influencing everything from the
selection of products to be manufactured and the channels through which they will be marketed
to the development of management and operational patterns and the ultimate success or failure of
international branches (Tur-Porcar, Roig-Tierno, & Llorca 2018). As a result, multi-national
corporations expanding their operations internationally need to be cognizant of the cultural
norms and expectations of each country in which they operate. Amazon being a company that
operates in the international market has been affected by diverse social and cultural factors.
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Social factors, trends and behaviours can affect the performance of the company both positively
and negatively. For example, an increased level of wealth disparity is a threat to the company,
consumerism particularly in developing states is an opportunity for the company and the
changing purchase habits of customers with a preference for online shopping is an opportunity
for the company. When consumers have more disposable income, this is potentially favourable
for the business as revenue will increase. An increased rate of consumerism results in increased
opportunity for the company resulting in growth for the company (Das, 2020). For centuries,
shopping was a social, in-person affair. Amazon has significantly fueled the era of empowered
consumerism. The company has personalized shopping experiences and this has significantly
changed the purchase habits of consumers.

Throughout the world, more people are shopping online. This trend has grown rapidly due to the
convenience offered. Lim et al (2016) sought to establish various factors that influence online
shopping behaviour. The researchers established that subjective norms and perceived usefulness
greatly impact online shopping. Furthermore, purchase intention was established to significantly
impact online shopping. These factors play an important role in a company such as Amazon. The
COVID-19 pandemic has also rapidly influenced online shopping behaviour. In a survey
conducted by the United Nations on Trade and Development, it was noted that more than half of
the respondents shopped online frequently. Digital technologies offered an alternative for
maintaining business activities, social interactions and consumption during times of strict
preventive measures. The pandemic resulted in an increase by 6-10 percentage points across
various product categories (see appendix 2). Furthermore, the percentage of online shoppers that
made at least one online purchase every two months increased substantially (Appendix 2). Also,
as per the survey consumers in emerging economies made the greatest shift to online shopping
(United Nations on Trade and Development, 2020). The purchase behaviours of consumers have
changed greatly and, in some way, Amazon has been impacted. In times of uncertainty, different
social factors can positively or negatively affect an organization. The pandemic for example has
impacted Amazon more positively. The business has experienced significant growth. Generally,
what this means for Amazon is that the pandemic positively impacted the performance of the
company and it would be prudent for the company to utilize these opportunities.
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3.5 Technology
Advancements in technological factors impact Amazon directly taking into consideration the role
that technology plays in the business. Technology is the backbone of Amazon and it has made
the company one of the most profitable companies globally. Amazon has been a technology
leader on numerous fronts in the 21st century, including cloud computing, e-readers, online
grocery shopping, video streaming, and gaming. Companies use technology to extend their
existing business models. Companies can penetrate new markets by being innovative and this
facilitates outstanding performance within a company (Yunis, Tarhini, & Kassar, 2018). In the
case of Amazon, some of the key technological factors that are important to the company include
increasing efficiencies of IT resources, increasing the rates of Cyber-crimes and rapid
technological obsolescence. Amazon Company has had to deal with several threats, especially
fast technological obsolescence, which puts pressure on the company to continually develop
technological assets. For instance, the corporation has invested substantially in information and
technology that might improve its competitive advantage that protects the business from various
threats, notably of new entrants in the online e-commerce industry. Amazon has the potential to
boost its performance further which raises resources of IT and their efficiencies. For example,
various emerging technologies in computing maximize the online retail business, notably in
productivity and lower the costs of operations. Contrary, the corporation also looks at the threat
of cybercrime that it faces. Such external variables threaten the value of clients and their
experiences and also the integrity of the company's business. For example, there have been
several cases of cybercrime concerning the company. In 2018, the company suffered a fraud
attack where hackers siphoned funds from about 100 merchants according to a report by
Bloomberg (Browning, 2018). In another instance, researchers discovered a new cyber attack
that spoofs the company to steal the financial credentials of victims (Trend Micro, 2022). Also,
researchers discovered that Amazon Echo devices can be weaponized to hack themselves. Such
aspects highlight the uncertain environment that the company has to deal with given such factors
greatly affect the performance of the company. In particular, cyber attacks can damage the
reputation of a business and erode customer trust. This could potentially result in a loss of
customers and consequently revenue (Bundi, Odero, & Omosa, 2018)
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3.6 Strategic Thinking

Given that the business environment is highly uncertain, businesses must always think
strategically. According to Rahman, Dey, and Al-Amin (2019), success in organizations is a
result of the effective implementation of organizational strategy and leadership. Amazon pursues
a strategy of concentric diversification. The strategy relies on the company's technological
prowess, a cost leadership strategy that aims to provide the best possible value to customers at
the lowest possible price, and a customer-centric approach that makes Amazon the first and only
stop for their online purchasing needs. This strategy has paid off, as seen by the company's
position as the largest online retailer in the world and its unwavering dominance in the niche
markets in which it competes. The business model pursued by Amazon can be explained using
the Ansoff matrix (see appendix 3).  Amazon is placed in the Overall Cost Leadership quadrant
and its continuous focus on costs is the key to understanding its overall strategy. Regular
members are offered steep discounts, and the company also strives to fulfil orders quickly and
accurately while also offering rapid shipping options and, in some cases, even covering the cost
of shipping entirely. In addition to this, Amazon's business model is predicated on the company's
sources of competitive advantage, which includes an emphasis on technology, the realization of
economies of scale, and the exploitation of synergies between the company's external drivers and
internal resources.  These aspects highlight the utilization of complexity theory within the
company such that the theory is applied within the business as a way of encouraging innovative
and strategic thinking as well as real-time response to change by allowing various units of the
business to self-organize (Aeeni, & Saeedikiya, 2019)

4 Conclusion and Recommendations

The external environment of businesses changes constantly and it is important to have an
understanding of this environment as it influences business activities and determines
opportunities and risks. This report has identified a variety of external factors that impact the
performance of Amazon. These factors include the political environment, knowledge
management economic environment, social factors, technology and organizational strategy.
These factors impact the company’s performance both positively and negatively. For Amazon to
succeed and thrive, the company must adapt, exploit and fit with the various external forces.

Based on the various factors explored in this report, there are several elements that the company
can incorporate to improve its performance. Amazon engages in lobbying practices to decrease
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the implications of political factors. As the political environment continues to be uncertain,

Amazon must consider increasing its budget on lobbying efforts to address issues such as
antitrust lawsuits, corporate tax returns, tax battles and so on. Furthermore, the company must
improve on its people management approaches and also integrate an open-equipped and
managed system of knowledge and information management to effectively address the areas of
improvement for ensuring appropriate growth and development within business operations.
These should include improving the working conditions for its employees. Another
recommendation is to consider broadening operations into developing markets due to the
promising prospects for e-commerce in those regions. In addition, the business must deal with IT
security concerns by maintaining and improving its existing IT security and integrity practices.
These problems undermine trust in the company's products and services and threaten the stability
of the company's macroenvironment.
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6 Appendix
Appendix 1

Source: Google

The decline of Amazon share prices in the past 6 months

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Appendix 2

Source: Covid and E-commerce 2020 survey: UNCTAD

Appendix 3

The Ansoff matrix the case of Amazon

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