Individual Essay International Business Strategy

Name: Vũ Đình Tùng

Class: IB1606

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INTERNATIONAL BUSINESS POLICIES AND STRATEGIES

1. AMAZON BACKGROUND
- Jeff Bezos had the ambition to become the biggest e-commerce seller in the
world, and it is in part for this that he chose to name his company Amazon, after the
largest river in the world. world. You could say that the challenge has been taken up,
since Amazon is part of what is called the "Big Four", made up of the 4 most
influential companies on the Internet, along with Facebook, Apple and Google.
- On July 5, 1994, Bezos initially incorporated the company in Washington state with
the name Cadabra, Inc. After a few months, he changed the name to Amazon.com,
Inc.
- Initially an online marketplace for books, it has expanded into a multitude of product
categories, a strategy that has earned it the moniker the everything store.
- Amazon HQ located at Seattle-Washington-USA.
- The company has nearly 90 logistics warehouses around the world, which cover more
than 7 million square metres in total. Amazon also has no fewer than 100,000
employees, more than half of whom were recruited between 2011 and today. Despite a
questionable and disputed profitability, Amazon still appears as the leader in
e-commerce in the world. And this success, the company owes it to 3 very simple
elements: Low prices A big choice Ease of use.

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-

- Main products and services:

+ Amazon store: an e-commerce site
+ Devices and services: produce electronic devices and services to make
customer daily life easier and enjoyable.
+ Amazon web service: AWS is the world's most comprehensive and a broadly
adopted cloud platform, offering over 200 fully featured service from data
centres globally.
+ Delivery and Logistics: Amazon Operations and award-winning Customer
Service teams are at the heart of Amazon’s mission to be Earth’s most
customer-centric company.
+ Entertainment: They create and provide access to world-class entertainment
through Amazon Originals, Prime Video, Audible, Twitch, Amazon Music,
and more for customers to enjoy.
- Main market
+ The top four markets are directly accounted for in the quarterly earnings
report. The following five markets, India, France, Italy, Canada and Spain all
had more than 150.000 sellers in their local Amazon marketplace according to
this overview of third party sellers by country from Statista

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 + business model:
According to diversification Amazon initially solely sold books, but Jeff Bezos quickly
realised that expanding the company's product line would increase sales. Slowly but surely,
Amazon's selection has expanded to include a variety of additional cultural goods, including
CDs and DVDs, as well as clothes, computer hardware, and other goods. And Amazon
employs a number of tactics in order to be present in all markets. Amazon will develop its
own storefronts in product categories with limited competition (for instance,MyHabit, a
personal clothes marketplace); for product categories where rivalry is a little more firmly
entrenched, Amazon will eliminate rivals. Zappos is a good illustration of this(shoes online),
bought in 2009 for the modest sum of 1.2 billion dollars.
Finally, Amazon partners with certain companies, such as Toys’R’Us, allowing them to
benefit from its services and technology in exchange for their products. Since 2003, Amazon
has also developed its “MarketPlace” platform, which allows third-party sellers to sell their
products directly on the Amazon site. Thus, the group makes sure to offer, in addition to the
most popular products (stored directly in its warehouses), rarer products.

Industry segmentation:

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 5 FORCE ANALYSING

- Buyers(high)
Since the internet distribution corporation wants to be everywhere with all customers from
the moment they connect, it would be better and less time-consuming to identify who is not
being targeted. But for many internet users, especially the elderly, online shopping is still not
a habit or reflex. Amazon is attempting to reassure this target. Therefore, it is no accident that
the first commercial for drome delivery in the US featured an elderly client. However,
Amazon doesn't just serve consumers; through its Launchpad program, it tries to reach out to
fresh start-ups who want to display their goods abroad and have storage facilities or even
shipping facilities.
Bargaining power of buyers (moderate-high) the customer is the end consumer (high
intensity) Depending on whether the product is fresh or packaged, the consumer can choose
between physical brands and / or online (delivery).
The bargaining power of buyers in Amazon Porter's five forces model is medium to high.
Amazon's success is based on customer satisfaction and product quality. Though switching
costs for the customers are very low, substitutes have emerged in large numbers. Customers
have access to general information about products and services that different suppliers offer,
making it easy for them to find alternatives.

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 - Threat of substitute(high)
The threat of replacement goods and services is one of the factors identified by Amazon
Porter's Five Forces Analysis. These forces include a large availability of alternatives, cheap
cost of substitutes, and low switching costs. Customers can simply choose a distributor
without incurring any additional fees thanks to the minimal switching prices. So they incur no
additional costs when they purchase from Walmart or Amazon. Then, numerous low-cost
alternatives are provided. In order to keep its reputation as the industry leader, Amazon fights
against these alternatives constantly.
Amazon competes with substitutes in the online retail as well as with the offline retail market.
The biggest hurdle that Amazon faces is low switching cost in the industry, as customers can
easily change from Amazon to other retailers. As Amazon does not sell unique products, and
most of the products are retail products, giving the best customer experience becomes a
necessity for the company.And a single bad experience will drive the customers away from
Amazon because of the easy availability of substitutes at a cheap rate.
Thus, the high threat of substitutes in the porter’s five forces analysis of amazon shows that
Amazon highly focuses on customer experience to attain success in the online retail industry.

But there are 2 specific aspect to measure about the substitution:

+ In terms of products (high intensity)
The threat in this case is rather the qualitative and quantitative dependence of Amazon on its
suppliers. If the choice is wide, the company retains a certain flexibility and an adaptability
because it has no production cost. As long as the online market remains confined to food and
quality products, the threat will remain high because there are no unique goods and therefore
the potential for substitution is high.
+In terms of services (low intensity)
Existing services are well established and are seeking to digitise. Amazon is precisely the
actor who can try to replace the existing service. Using its technology and logistics, the

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company can do without intermediaries to streamline service. By achieving low cost price
performance around the world, Amazon has so far little to lose in this market. As long as the
regulatory framework does not change, the threat comes from the only slow adaptation
exerted by the historic players who tend to digitize their services.

- Threat of new entrant (low0

It is easy to start an online retail store or an e-commerce website on the internet, but it would
be difficult for any brand to take on a giant such as Amazon. It would require massive
investments in warehousing, distribution, marketing, making user-friendly websites, customer
service, logistics and many more.

1) Switching Costs: It is easy to enter the e-commerce industry, and also it is easy to gain
competitors, customers, because of the low switching costs in the market. However, the
extensive investment that Amazon makes on its brand development and, on customer
experience, it becomes difficult for the competitors to compete in the market.
For any other brand, it would require billions of dollar investment and years of patience, to
directly compete with Amazon.

2) Economies of scale: Amazon has an advantage over other brands on economies of scale
because of the reputation of being the largest internet retailer in the market. Although new
players can comfortably enter the market, they cannot potentially use economies of scale in
their favour at the same extent as Amazon.

3) Customer Loyalty: Amazon gets the advantage of being the first big player in the
e-commerce industry. Amazon knew that customers can make or break a business, and, so it
heavily invested in customer experience from the beginning whether it be modifying
customer friendly websites, Delivery time and return of goods. Amazon tried to give its
customers the best experience in the market. It is also difficult for any other player in the
market to invest heavily in customer experience. In other words, the time of entry and
customer loyalty act as a significant factor in the e-commerce industry.
But, ultimately, Mr. Summer(Lawrence Summers, former U.S. secretary of the
Treasury)thinks the biggest threats to Amazon remain unknown. He said:“Usually it’s the
threats you don’t see that get you, not the threats you do see. IBM was brought down by the
personal computer. Microsoft was brought down by the internet,” he said. “My guess is the
biggest threats to Amazon come less from changes to public policy than changes in the
technology environments that we don’t foresee right now.”

- Competitive(high)

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Amazon competes against strong competitors, and the rivalry in the online retail industry is
high. Because in recent years, the number of players entering the industry has increased with
many retailers, small scale brands, and startups are starting to sell their products online. The
main competitors of Amazon are Walmart, Flipkart, Alibaba, eBay and many more. All these
players give intense competition to Amazon. Low switching cost and readily available
substitutes put more pressure on Amazon because customers can transfer from one retailer to
another at low cost.

The search for competitive prices to those of upheavals at the level of the supply chain,
throwing the identity of the Whole Foods supermarkets, established on the bio and the
sustainable development. Local brands could thus disappear from the shelves, Amazon
having increased pressure on suppliers by taking higher commissions or demanding large
discounts, up to 25% of the original price. "Amazon is wisely standardising the product line
to reduce logistics and labour costs. Amazon.com Inc. competes with various companies,
including small online retail stores and large companies, such as eBay, Alibaba, Flipkart,
Costco, Target, Walmart and Best Buy. The global reach of e-commerce activity also exposes
Amazon to a diverse set of external forces. Thus, the business must ensure that it remains
resilient to changes in the conditions of the online retail environment. However, Amazon will
"use Whole Foods as a laboratory to try to completely transform the food distribution sector",
which until now has been little invested in online commerce. For traditional players
(competitors), this is absolutely dramatic because there will be more price competition.
However, the margins for food are 2%, which is extremely low. they will have to invest more
in technology to improve their physical stores and also on their online platforms to keep pace
with the pace of Amazon.

- Seller

Suppliers control the availability of products for the eCommerce operations of Amazon. Also,
Amazon relies on the equipment and hardware components for information systems in cloud
services. The bargaining power of suppliers is a moderate force. The contributing factors to
this force are small suppliers, moderate forward integration, and the size of suppliers. The
influence of suppliers in the e-commerce business is more because without them, the retailers
will not be able to serve their customers.

But Amazon is the most prominent player in the industry and has the upper hand over its
suppliers. No doubt there are many suppliers working with Amazon, but they must follow
strict rules and regulations laid out by Amazon. If Amazon sells a product whose suppliers
are in small proportion, then the power suppliers increase moderately, because there is less
competition among the suppliers. Amazon strictly emphasises on the ethical working of its
suppliers, and it is tough for the suppliers can even think of the forward integration in the

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supply chain. So, based on the porter’s five forces analysis of Amazon, the external factors
show us that suppliers have low to moderate power in the industry.

On the scale of Amazon and its direct competitors, we can indeed estimate that the
e-commerce market is dominated by a few players. For example, 1/3 of online purchases in
the US are made from 3 e-merchants: Amazon, eBay, Alibaba. In front of these companies,
there are also few suppliers capable of delivering such volumes (especially with the time
constraints that are imposed and which lead to a shortening of delivery times). These are the
national postal players (Bpost has long been Amazon's supplier for weekday deliveries and
Postnl for weekend deliveries) and the trio of delivery companies worldwide (DHL, Fedex,
UPS). All of these players are very interconnected anyway and depend on each other for one
or the other type of service. The Amazon manoeuvre therefore aims to unleash a new type of
competition in order to reduce the negotiating power of its suppliers and to be able to reduce
the cost of its logistics (remember that the success of Amazon was built on free delivery, a
revolutionary concept 10 years ago. However, the cost of delivery has to be paid by someone.
Free delivery and returns therefore weigh on Amazon's operating margin which says at all
costs keep these prices under control for better dominate the competition.

3.CONCLUSION

Amazon is already a company with a solid foundation on many fronts, with the potential to
expand competition in many new aspects.

In a position where the forces are weaker, we can find a position for the company where there
are fewer new entrants threat or less substitution threat.

For example, a position to take strength from competitors would be to create a unique
service like in the case of whole food market appropriation. To be unique, they can propose
personalised diet meals and supplements at a competitive price as well as a “get in shape”
online program for each meal package bought. An advantageous price Free delivery Positive
opinions on a product Amazon Prime subscription Fast delivery Amazon recommendations
related to cross-selling Opportunity to differentiate is pretty high because of the innovative
side of amazon and its position in the industry makes the customers more likely to react
positively to the differentiation.

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 Refference

https://www.edrawmax.com/article/amazon-porters-five-forces-analysis.html

https://www.marketing10.in/porters-five-forces-analysis-of-amazon/

https://www.nytimes.com/2021/12/03/podcasts/amazon-labor-shortage.html

https://en.wikipedia.org/wiki/Amazon_(company)

https://downstudocu.com/doc/8129041/study-case-amazon-porter-five-forces-analysis

https://en.wikipedia.org/wiki/History_of_Amazon

visualcapitalist.com

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