MGMT205 International Business : Analysis of Amazon

Answers:

Introduction

This era is marked with globalization and international marketing. There was a time when the large organization used to cater to the domestic market. However, there has been a change in this strategy. Today, the large organizations want to tap the huge international market. The large companies like British Petroleum, Microsoft, Google, etc. have their presence in almost every part of the world. One such domain or area of expansion is e-commerce (Singh & Bhojvaid, 2015). The last decade has seen an exponential growth in the development of companies like Amazon. The objective of this paper is to discuss the ley issues that multinational organizations face in the international business arena. These challenges could be internal or external in nature. The paper is divided into four parts. The first part discusses the multinational organization. This paper is based on Amazon. The second part discusses the analysis of host country. In this section, the analysis is done for Indian market. The part 3 discusses the foreign entry strategy of Amazon in Indian market. The last part of the fourth part discusses the overall impact of Multinational organization. These parts can be discussed in detail as:

Part 1: Analysis of Amazon

Amazon is the fastest growing e-commerce company in world. The company was founded by Jeff Bezos in the year 1994. Amazon has its presence in different parts of the globe. The company is present in American market, European market, Middle East and South East Asian market. Amazon is a public listed company with a revenue of close to $135 billion. Amazon has more than 3,40,000 employees. The company operates in Internet industry and this industry is very competitive in nature. Bezos incorporated the company as "Cadabra" on July 5, 1994. Bezos changed the name to Amazon a year later after a lawyer misheard its original name as "cadaver. There are a lot of global and large players in global market like ebay and Alibaba. The competition is fierce in the market with a presence of both domestic and international players. In recent times, Amazon has also started to focus on ethical and moral values of business in addition to the capital. The appealing thing about conscious capitalism is that it recognizes that profitability is about more than just profits because a company can accomplish more by doing things right for its employees, customers, society and environment (Sugden & Punch, 2014).  Logistics of Amazon is strong as it is focusing on both online and in-store offerings and is maintaining its distribution channels by "In-Store Pick Up," "Ship from Store," and "Ship to Store" fulfilment channels. It is also tapping new international markets which have high scope and still there are not red oceans. This way, the company would have an early mover advantage.

Part 2: Indian market analysis

India is an evolving economy with the second most population in the world. India is still a developing economy and the large players have realized the importance of Indian market. The GDP of India is growing at a good growth rate and it is one of the country with best growth rate. There are a lot of country specific or regional factors that has affected the firm’s choice of country. One of the most exciting factors for Amazon in Indian market is the huge demand and untapped market. The expansion of Amazon in Indian market could also be explained in terms of Porter Diamond model (Oudan, 2010). The Porter Diamond, properly referred to as the Porter Diamond Theory of National Advantage, is a model that is designed to help understand the competitive advantage nations or groups possess due to certain factors available to them, and to explain how governments can act as catalysts to improve a country's position in a globally competitive economic environment. This model can be shown as:

For Amazon, the chance was the large and open e-commerce market in India. There was very limited presence of international and domestic markets. The domestic players like Flipkart was in good position in the market (Eisenberg & Gupta, 2015). However, Amazon changed the game when it entered the Indian market. The firm strategy that Amazon focused on was cost leadership. In India, Amazon wanted to be a player that has the cost leadership advantage. This is the reason that Amazon focused on user acquisitions rather than profit margin. The demand conditions are good in Indian market. There is a large and untapped market. The government regulations are not very swift in the market (Nag & Han, 2014). However, the government has also realized the importance of international players in the market. The other support factors also appear to be good for Amazon to expand in the Indian market.

For that matter, India could be the best option among these countries because it is highly developing economy with very large population. Here, the demand is increasing rapidly for good quality toys (Nag, 2014). The purchasing power of people is increasing and they tend to invest more for their children. Also, the competition is currently comparatively less. So, this market should be tapped for longer term growth opportunities by Amazon company. Also, there is high annual growth in demands which leads to large increase in CAGR of Toys industry in India.

India with its billion plus people is always a lucrative market to expand. The good news for Amazon was the fact that 65% of the population in India is under the age group of 35 years (Sarkis & Dhavale, 2015). The bad news for Amazon was the fact that close to 65% of the population still lives in the rural areas.

Part 3: Foreign entry strategy

There are two major types of entry modes: equity and non-equity modes. The equity modes mean direct entry and non-equity modes mean entry through export or contractual agreements. Amazon used the equity mode to enter the Indian market. Amazon has a wholly owned subsidiary in Indian market. There are more risks in direct equity approach and organizations find it difficult to roll back from this strategy (Laufs & Schwens, 2014). However, there is always a better control of organization and employees in direct equity mode. This is the reason that Amazon decided to use the direct equity approach. The direct entery market entry approach ensures that organization does not have to comprmise on its principles (laufs & Schwens, 2014). Amazon wanted that it should enter the Indian market with its same mission and vision and the company was ready to take the risk of direct entry. The management of Amazon realizes that Indian market could be one of the largest market for Amazon. Therefore, there was a strategic focus of leadership team of Amazon while it was entering the Indian market. The foreign market entry strategies in an increased level of risk can be shown as:

When Amazon decided to enter the Indian e-commerce market, it wanted to enter in a big bang way. Amazon was sure that it did not want to do any merger and acquisition as it would have diluted the stocks and control of Amazon. Therefore, Amazon decided to use the direct business model to enter the market.

One of the major constraint for Amazon to have direct operations in the country was the limited knowledge of Indian market. However, Amazon has a vast experience of entering various foreign market. It is correct that Indian market was different in nature. However, with careful planning, Amazon was able to manage the operations. At the time of entry, Amazon also explored various other market entry methods like joint venture and merger. However, Amazon did not want to dilute its control in the organization (Niu, Miles & Lee, 2013). Therefore, Amazon rules out the option of mergers and acquisition. Moreover, the option of export and import is not possible in e-commerce industry. This is the reason that Amazon decided to enter Indian market with its own subsidiary. Amazon is known for making huge investments in foreign market. The company is a cash rich country and it invested a lot in the Indian market.

Part 4: Amazon and its impact

Amazon has been able to position itself well in the Indian market. The company does face competition from local players like Flipkart. The key business impact for Amazon in Indian market can be discussed as:

Purchasing Power- CAGR increase in e commerce industries is estimated for various developing countries like India, Sri Lanka, Nigeria etc. in upcoming decade. These developing countries are turning into lucrative markets for e commerce industry as their economies are growing. People have increased purchasing capacity because of which they also tend to buy more stuff like toys for their babies.

Brand Resonance- Although, still majority of customers are price sensitive in India; people tend to have now safer approach for their babies. Due to this, they are now preferring branded products over the cheap ones.

Online communication and channels- Before the physical play, now youth are experiencing the power of e commerce in digital forms. Many brands have started with apps and cartoons and then according to the response of likeliness, similar toys are put up in the market. For example- Mattel’s Monster High. Also, online channel penetration is high and people are now buying through market space. It is easy, convenient, and provides variety to choose from. Hence, digital marketing also plays a very important role (Christensen, 2013).

One of the key international business challenge for Amazon in Indian market was the cultural challenge. There is a huge difference in the culture of America and India. It is observed that American leaders are open and their key focus is on outcome (Lin & Hong, 2008). The employees have a voice to say under American leaders. However, the same is not the case with Indian style of leadership. For instance, the political connection is high in Indian leaders as compared to American leaders. The American approach to leadership is more flexible as compared to Indian approach to leadership. It is also observed that; the American leaders are more open than Indian leaders. Moreover, the American leaders have a better system thinking approach as compared to Indian leaders (Nag, Han & Yao, 2014). The bottom line is that there is less freedom of action for executives and boards in America than in Asia.

Another key challenge for Amazon in India market was tough competition from the local players. Amazon addressed this challenge by hiring the local people. Amazon has a special vision for India. This vision includes transforming the ecommerce industry in India. Unlike the American market (which is highly organized in nature), the Indian market is fragmented with a lot of local players (Mahon & McGowan, 2010). Therefore, it was difficult for Amazon to expand in the Indian market in a standardized manner. Amazon changed its strategy and expanded in Indian market with a more local approach in mind. The local and contextualize strategy was used to manage the local operations in the Indian market.  

The United Nations global principles and sustainable development goals include the focus on responsible business. The UN advocates that achieving business transformation will be essential to achieving transformational change through the SDGs. For companies, successful implementation will strengthen the enabling environment for doing business and building markets around the world. Some of the areas that Amazon will need to focus includes economic growth, affordable and clean energy, innovation, etc. The management of Amazon should realize that true sustainable development can happen with the support of all the stakeholders (Kucukvar, Egilmez & Tatari, 2014). This is one of the reasons that Amazon consider its employees as one of the key stakeholders. Along with customer relationship, Amazon also focuses to maintain employee relationship. Amazon realizes that Information Technology could be a powerful asset for the company to continue on the path of sustainable development. With technology, today businesses are more transparent than ever and how a company conducts business, how profitable the company or how good employees are treated is often available for world to view on social media. It is also important that the Amazon should focus on strong leadership at top for sustainable development. Many employees are seeking more autonomy, purpose and meaning in their daily work. Traditional leadership no longer works as organizations are entering the relationship era; where collaborative leadership is now the future of business. Servant leadership inspires stakeholders, empowers employees, establishes foundational changes and motivates individuals throughout an organization to desire to be of service to others (Holtbrugge & Baron, 2013). Amazon wants to focus on sustainable development so that it can achieved the objective of triple bottom line. The triple bottom line in alignment with the sustainable growth and development objective of Amazon can be shown as:

Conclusion

The above paper discusses the expansion of Amazon in Indian market. Since there is heavy competition from other big players, Amazon needs to keep its margin low and maintain its profit through economy of scale. Otherwise, people will opt for similar products which are provided at lower rates by its competitors. Research and development is in place and innovation must be inculcated in the types of types and also in manufacturing of products. Online and other forms of integrated marketing communication must be in place to increase the demands of its products. The loyal customer segment must be provided proper service and catered with offers and discounts to retain them in the long run. The above paper also discusses the issue of competitive advantage and sustainable development for Amazon. When discussing competitive edge with many companies or leaders the discussion will likely by nature focus on keeping down cost and keeping output high. Input is just as if not more important than output because they are directly related. Servant leadership can give an organization a competitive edge due to the correlation between the elements of servant leadership, employee engagement and productivity.

References

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