Internet Services and Retailing -Amazon Company
Introduction
Today, most business firms are inclined to expanding their operations worldwide in a bid to broaden the market share as well as having a source of competitive advantage for the company. Many established multinational enterprises involved in internet services and retailing industries have, over time, perfected these strategies owing to the viable marketing analysis they have put in place. Subsequently, the 2019 fortune global 500 enlists such enterprises to the global scale regarding their performance both in their home of operation and internationally. The purpose of the essay study is to look into specific e-retailer activities globally. The case study will delve into focusing on amazon retailer. The paper will give a brief history of its originality, the year it was formed, its founders, and where it is headquartered. After that, the essay will focus on the current political situations in Mexico-the the host country, with much emphasis on the opportunities and challenges it creates for amazon firms. Later, based on the understanding of the strategy and structure of multinational enterprises coupled with extensive knowledge of entering foreign markets, the phenomenon will endeavor to analyze strategies. Also, viable entry modes for amazon in Mexico will suffice and discussed. The decisions made to plan and deployed such models in host states pose considerable benefits and challenges in equal measures. The research will evaluate amazon’s pros and cons in employing models like merger and investment, direct exporting, and feasibility studies in Mexico. The investigation will conclude by giving candid alternative actions to be undertaken in managing a chosen firm in the foreign state. Given that countries portray different and unique cultural practices, amazon’s presence in Mexico is prone to coming across such diversities. Conclusively, the study will give a summary of the concepts discussed herein, basing its findings on the online retailer-amazon.
Brief profile of Amazon.Com Inc.
Amazon. Com Inc. (AMZN) is an online retailer based in the United States. According to Varia and Mathew 2014, the multinational technology was founded in July 1994 by Jeff Bezos in Seattle, Washington.it is the largest cloud computing and e-commerce retailer in the world both in the capital market and total sales fronts. Initially, Bezos started operating the firm as market place books using an online platform. Later due to the high demand for other consumables, the firm sought to expand its range of products.
Core Resources, Capabilities and Source of Competitive Advantage
Today the firm’s principal products and services are divided into three business segments: international, North America, and amazon web services (AWS). Amazon retail operations consist of both North America and worldwide. The enterprise uses these geographical locations to generate its revenue from its retails firms concentrated in these regions. Besides, both subscriptions and export sales emanate from these areas. Amazons North America’s business segment has the lion’s share of net sales, accounting for $ 141.4 billion by the end of the fiscal year 2018 (Wu and Gereffi 2018,p.350). Furthermore, the region has initiated subscription services as a source of attracting revenues. For example, amazon prime provides free shipping services, television shows, streaming of movies, and many more, which are unlimited hence commanding large market share in the northern American segment.
On the other hand, international amazon segment operates in the retail business for subscriptions and consumer products such as groceries that focusses on online stores countries such as the United Kingdom, India among others benefit significantly from these operations. Other export sales from those stores are also included in the process apart from those from North America online stores.amazon.com first entered into the Mexican business market in 2013 (Wu and Gereffi 2018, p. 349). It opened its Kindle e-book site to leverage on high demand of people in the country whose preference of reading had skyrocketed. It is paramount to note that despite various models succeeding in Mexico, the concept of uncertainty avoidance came to play. The ideology focuses on the extent to which ambiguity and uncertainty are tolerated in different cultural settings. For instance, in Mexico, people work with fewer written rules, feel comfortable with ambiguity and variability. Besides, they are willing to take business risks. The culture made it easy for giant retailers to maneuver through the Mexican market dynamics hence diversifying its e-business operations.
To reach its targeted market on a large scale, the company has invested in an advanced technology called Amazon Web Services (AWS). Launched in 2006, AWS has posted significant growth profit with higher margins (Varia and Mathew 2014, p. 20). The sole function of the service is to deliver content and store relevant information for businesses, government agencies, and learning institutions across the globe. Amazons administration refers to them as a “broad set of global compute, storage database, and other service offerings” (Varia and Mathew 2014, p. 22). Countries in Europe, like Mexico and Germany, are vast beneficiaries of AWS. Both North American, international, and AWS market segments act as core resources and sustainable strategies for Amazon Company to compete favorably in global business supply chains.
An analysis of the current political situation of amazon in Mexico; opportunities and challenges created.
Like any other multinational enterprise, amazon engages in foreign direct investment while operating in multiple countries. The current political situation in Mexico, where technological giant amazon is hosted, plays a crucial role in its operations. The relationship between the host government, political ideologies, economies of scale, and physical distribution forms a matrix of elements affecting how business sustainability in a host country. Ideally, political analysis creates massive opportunities and challenges in equal measures as a host country amazon enjoys considerable opportunities which provide the source of competitive advantage of the competitors. They include: Firstly, political stability being witnessed in Mexico has made it possible for an e-commerce business to thrive. The multinational enterprise has taken advantage of this situation to form alliances with related firms to expand its branches across the country. Thus widening its international business across the globe, its global technological competitors such as Apple, Facebook, Google, and Alibaba tend to shy away from exploiting such avenues due to political unrest in their target market (Yoder et al. 2016, p.325). Secondly, the enterprise can strategically form business alliances with other global giant retailers due to Mexico’s good political will. Besides, the legal policies, such as good terms of trade coupled with the world trade organization membership, enable amazon to form a strategic partnership with the host country hence widening its market share.
Besides, as a federal government, Mexico has increasingly supported the efforts put forth by various agencies to fight cyber-security. The move has put the online giant above its competitors. The firm enjoys this tranquility by expanding its web services and securing its client’s data besides its critical information. Therefore, these aspects are significant opportunities amazon could exploit to heighten its resilience in the macro-environment of e-commerce and information and technology in Mexico. Conversely, the current political stance in Mexico creates an array of challenges for amazon operations in Mexico. Lately, Amazon has invested heavily in Mexico intending to open mega –warehouse in the city to leverage on the e-tailing platforms it commands globally. The 1 million square- foot mega- warehouse aims to hold the capacity store of 15 million products to be distributed across the nation (Yoder et al. 2016, p.325). However, if the political uncertainties being witnessed between the US and Mexico concerning the threat of cancellation of NAFTA is anything to go by, amazon’s strategies to stay afloat in e-commerce might radically flop. The Trump administration is opposed to the Mexican government and unfavorable e-commerce conditions NAFTA is imposing on international businesses. Mexican citizenry who buy Amazon products worthy of $ 50 are required to pay duty to the government.
On the other hand, the policies cause adverse effect to the US economy, thus unable to maximize on the e-commerce platforms as well as achieving full potential to the Mexican government. Besides, Trump’s election was based on nationalist promises. Therefore, his new target on keeping NAFTA at bay means a lot to amazon’s firm. The trumps administration accuses it of expanding the US deficit trade mechanism with Mexico as well as disabling the manufacturing firms. The plan to disassociate with the agency could slow its entry marketing strategies as well as reducing its popularity in Mexico.
Analysis of strategies and entry mode choices adopted by amazon in Mexico; an evaluation of benefits and pitfalls of the decisions and alternative actions undertaken with justification.
Most multinational enterprises adopt robust strategies and structures to enter into foreign market segments to explore different market dynamics. However, after an analysis of the environment is done, a mixed impact of the assessment suffices. Questions abound as to where to enter the market, when and the mode of the entourage to be instituted. MNEs’ strategies are carried out in more than two countries who engage in competitive business to stay afloat in its operations as its response to foreign rivals (Fojcik, 2013). In the pursuit to seek global competitiveness, retail firms, especially those in internet services like amazon, have strategic objectives. In the current competitive environment, strategies are put in place for efficiency, flexibility, and provision of learning from international fronts. Currently, Amazon is growing quite rapidly in its online market, becoming the third-largest globally. A market entry strategy involves methods amazon would employ as it enters a new market. The entry modes of the multinational enterprise into the foreign exchange of Mexico is very critical. In a bid to expand its online services, the management considered the following factors (Fojcik, 2013):
- Type of industry; this is the ability of the company to easily integrate with other related firms offering the same kind of goods and services. As an online retailer enterprise, amazon focused on partnering with affiliated local companies in Mexico to expand its market share. Therefore, it became easier to manufacture electronic book readers and provided web services tailored to the targeted market of Mexico.
- The new markets culture- these are customs, ideas, and social behaviors that are leaned and shared by society. Ideally, it’s a way of life of people. Businesses aspiring to enter into new markets have to grapple with cross-cultural issues that are present individualism and collectivism elements. The inhabitants of countries like Turkey, South Korea, and Columbia will exhibit collectivist culture. On the contrary, people from the US, Mexico, Australia, Great Britain, and Canada have an individualistic culture (Fojcik, 2013). Amazon captured this concept quite faster through a feasibility study before entering Mexico. Mexican culture was so much inclined towards physically going into the stores to find products for themselves. It was until amazon presented them with web services that quickened the transaction process.
- Cost- this ranges from transportation cost, installation, and labor costs.
Entry modes of amazon in Mexico
Feasibility studies – global amazon expansion was informed by the fact that its local market opportunities in the US were becoming limited. Upon its formation in 1994, the founder Jeff Bezos purposed to strategically place the firm at Seattle owing to the massive technical skills and talents together with the location of Microsoft (Al Ariss, 2010). The firm’s management did a strategic market study, and in 2013 the company opened its doors in the Mexican market. Kindle e-book site was hatched, targeting institutions of research and learning. In a lifespan of two years, the giant e-retailer studied the different market dynamics in the region, consequently widening its product sales by a considerable margin. Therefore, after a robust feasibility test and study, the management targeted Mexico. Though the Mexican retailing practices were different such as consumer tastes and preferences, varying infrastructure, and dominant domestic retailers, the firm carried on with the plan.
Merger and investment model-Considering Mexican had already established retailers, through merger and investment, the firm was able to invest in Mexico despite the challenges mentioned earlier directly. Amazon was in the position to conform to the general thinking patterns of expansion through (Al Ariss, 2010).
- Access to foreign resources
- Control of the local market through establishing a market share niche while benefiting from non-control of foreign operations
- Access to international markets and financial benefits, for example, taking loans.
- They are exposed to higher foreign sales than the exporting of products.
Direct exporting-After the feasibility study of the Mexican market, amazon developed a website network in a bid to sell its products directly. Though factors such as tariff rates, marketing, and transportation costs and adaptability acted as an impediment to the concept, it did not relent. Furthermore, the firm opted to match strategic goals with that of its hosts by taking advantage of market-related locations. It worked closely with agents and distributors of foodstuffs and other related products, which became the face of amazon in Mexico. Subsequently, the multinational firm eventually got accepted by the locals. To date, the firm enjoys a considerably larger and rapidly growing market, relatively reasonable transport costs, and financial protection from the state. This is made possible through cooperation from direct export.
Benefits of the entry strategies in Mexico by amazon
with the established a good marketing relationship with the Mexican government, amazon’s entry strategies bore significant benefits in return. First, the feasibility study conducted established entry barriers, thus providing an opportunity to develop a good rapport with key stakeholders. In the process, Amazon was able to create proprietary and technological leadership in the nation’s e-commerce services. Secondly, direct export strategy enabled the multinational enterprise to interact with the experts in the online field closely. Agents and distributors played a crucial role in furnishing administration with relevant information regarding appropriate mode for standardizing goods in Mexico. Also, they helped treat foreign demand, such as selling new e-books with flexible prices as opposed to pricing them at fixed costs, which would later elicit a lot of reaction from the publishing firms like Macmillan books. Moreover, direct entry enhanced capitalization on economies of scale, thus increasing the market share. Drawbacks of entry strategies in Mexico by amazon
As a multinational firm, amazon has had the privilege to showcase e-business services to its customers worldwide. However, a myriad of cons manifests when such tools are not adequately instituted while at the same time appropriately implemented. Firstly, direct exports proved to be costly as the firm could not content with the high transportation costs incurred in the installation of website services. Also, there was an element of underestimating different expertise required for foreign market entrance. Another drawback emanated from licensing and franchising (Zhu and Liu 2018, p. 2620). Amazon’s firm could give away critical technological skills to potential foreign competitors like Alibaba group hence exposing its strength. Amazon Company had minimal control over the foreign subsidiary and, in the process, limiting itself from the government’s legal market cover.
Additional actions I would undertake in managing the amazon enterprise in Mexico.
The responsibility of managing the affairs of amazon firm in the host country, Mexico rests with the stakeholders, for instance, managers and supervisors. The provision of alternative payment methods would be paramount. Zhu and Liu (2018) assert that In 2014 Mexicans had the lowest ownership credits worldwide. For every 100 people, only 21 personal loans could be accounted for in the sector. Retailers using online platforms in pursuit to boost their business in Mexico could give out their card products through partnering with other financial providers like banks to offer co-branded credit cards. Therefore, providing such alternative financial services while making alliances with banks.
Further still, amazon should be open to the idea of having payment methods. Other giant e-retailers across the globe have successfully used this strategy. For example, Walmart Mexico uses both Mercado Pago and PayPal to manage its operations. As an expert, the introduction of such payment will help amazon reach a broad audience within a short time.
Conclusion
Many multinational enterprises desire to expand their business operations not only locally but internationally to widen their market share, which results in profits. In this regard, they institute a mechanism that will see them enter this new segment of markets called entry models. The paper has examined Amazon Company as a case study. It was founded in 1994 by Jeff Bezos is based in the US. The firm sells an array of products ranging from books, movies, music, electronics, toys, housewares, among others. As a multinational e-retailer firm, the company boast of having the best online services worldwide. Amazons web services businesses entail computing resources and renting storage data over the internet through a mechanism called cloud computing. Besides, several entry models in new markets with more emphasis on the Mexican market have been discussed. These strategies have yielded a lot of benefits, like gaining access to the direct supply of products: electronics and e-books. However, drawbacks to these models have also surfaced in equal measures. Cybercrime and foreign operational costs have acted as an impediment to this movement. However, the e-retailer has managed to retain its selling strategies mainly through direct and indirect international export in Mexico, thus easing online transaction burden for consumers.
References
Al Ariss, A., 2010. Modes of engagement: migration, self‐initiated expatriation, and career development. Career Development International
Fojcik, T.M., 2013. Verbeke, A., International Business Strategy: Rethinking the Foundations of Global Corporate Success, Cambridge University Press.
Varia, J., and Mathew, S., 2014. Overview of amazon web services. Amazon Web Services, pp.1-22.
Wu, X. and Gereffi, G., 2018. Amazon and Alibaba: Internet governance, business models, and internationalization strategies. International business in the information and digital age, pp.327-356.
Yoder, S., Visich, J.K., and Rustambekov, E., 2016. Lessons learned from international expansion failures and successes. Business Horizons, 59(2): 233-243.
Zhu, F., and Liu, Q., 2018. Competing with complementors: An empirical look at Amazon. com. Strategic Management Journal, 39(10), pp.2618-2642.