PEST Analysis of Amazon Essay
PEST Analysis of Amazon
Since the internationalization of Chinese economy to now, China has become the world’s second largest economy by nominal GDP. However, the best measure for comparing output across countries is the GDP by purchasing power parity since China’s exchange rate is determined not by market forces.
What’s more, over the past 30 years, China has an average growth rate of 10% per year, which indicates that it is the fastest growing major economy. In this context, we are going to analyze the political, economical, socio-cultural and technological issues of Amazon, which is called PEST analysis. It’s a simple business measurement tool but important and widely used that helps understanding the market growth.
Political point of view
Amazon arrived in China in 2004. Implementing itself in China was not a simple task to do. Even if the firm was number one in all the countries it was already implanted in (the US, the UK, France, Germany, Canada, Japan), Amazon had to follow a certain kind of rules imposed by Beijing Government.
In order to find it place in the Chinese Market, Amazon had to submit to the control of the goods that are sold in the Chinese territory. Knowing that the censorship is very present in China, every single fluctuation of goods is monitored. It is the same case, for example in Germany, where the neo-Nazi books are banned from sale (prohibited by the government).
On August 2013, a new policy has been implanted by the Chinese government in order to support the development of cross border e-commerce, and therefore introduced six new measures concerning customs clearance, quarantine inspections, taxes and exchange rate.
Also, on August 2014, Amazon has signed a memorandum of agreement with the authorities of the Free Zone oh Shanghai. Under the agreement, from the fourth quarter of the year, Chinese Internet users can make purchases on Amazon at prices much lower than before. This new method allows the Chinese to greatly reduce the cost of cross-border shopping and shorten delivery time. Under the tax regulations in the free zone, less than 500 yuan order is tax free, while orders between 500 and 1000 yuan will be subject to a postal mailing fee personal items by 10%.
The major players in the e-commerce in China are Alibaba and Jingdong, which are listed on the NASQAD. They are Amazon’s direct competitors, but the Us firm has advantages in terms of storage and logistics. Networks around the world will help to be worthy competitors against the Chinese competitors, whereas Alibaba and Jingdong will be forced to spend time and financial resources to develop their own ways of purchasing and logistics abroad.
Amazon can still pull out of the game, but is still has gaps in cross-border ecommerce compared to rivals.
Economic point of view
In the economic point of view, Amazon.com is a new kind of business as it is considered as an e-commerce company. Indeed, Amazon.com Inc is an American international electronic commerce company created in 1995 by Jeff Bezos. Started as an online bookstore, it rapidly enlarged its products and started selling DVDs, CDs, software, furniture, toys and so on. Also, Amazon has separated retail website for the different countries as the United States, France and Italy.
Firstly, let’s take a look at Chinese currency fluctuations. In many countries, when currencies are highly devaluated compared to the dollar, it may bring additional costs to the company. Moreover, some products prices may be increased, affecting the main attraction (lowest prices). Also, we know that the Chinese state continues its tight control of the financial system in order to manage the economy.
And even after receiving multiple complains and being criticized by Washington and other trading partners in different countries, Beijing decided to release some of their control on the exchange rate. Indeed, suppressing the value of the Yuan will unfairly make China exports cheaper abroad and hurt foreign competitors. We assume that as far as Amazon is concerned, being a foreign company, it still hurts its investment in China. In order to avoid the currency fluctuations problem, Amazon has a policy of using the original foreign exchange rate for the purchase and allows customers to choose between paying with their local currency or with US dollar.
On the other hand, we have the economical tendencies, which is here, mostly how customers purchase. Before the Internet boom in 2000, people tends to purchase goods and products in their neighborhood stores than going online. Reasons were various, like being used to buy things in a store, do not trust Internet, fear that after buy something and it will never be delivered or just because trying something on is always better before buying clothes.
Yet, this tendency changed over the years. Purchasing goods on the Internet can also brings some advantages. Indeed, wider choices of items are proposed and generally cheaper than in a shop, which is a good point considering the economic crisis, the process is quick and return is possible. Considering these advantages, it slowly becomes an economical tendency.
In conclusion, people habits have changed towards Internet and that’s why more and more customers enjoy buying on the Internet. In this context, it was a big success for Amazon to start with online books and rapidly extends to other electronics items, as well as in the United States and other countries than for China and India which are even bigger markets.
Social point of view
There are different social influences. The social trends are very important. Online shopping is the “mainstream“. In 2014, a survey shew that only 1 percent of the participants surveyed stated that they never shop on the Internet. 40 percent shop on the internet at least once a month. An additional 17 and/or 5 percent shop on the Internet one- to two times weekly and/or more than three times a week.
Free shipping is an important motivator, which is why Amazon can deliver the products without any delivery fee. 80 percent of the customers stated that free shipping options encourage them to shop online. For 66 percent the delivery speed also plays a significant role. An entire 64 percent also appreciate the free return shipping and exchange policy. With only 37 percent, virtual dressing rooms are at the bottom percentile of demand. Also, because of the economic crises in different countries such as France or Spain, an increasing amount of consumers are happy to rent a product rather than owning it. For books, lots of consumers share this opinion. Consumers attitudes and opinions are very important is an important social influence. That is the reason why Amazon offers to buy back the books of its consumers at low price.
For customer’s birthday or for Christmas, Amazon organizes big sales in order to encourage consumers to buy their products. This year Facebook has made huge bounds forward as a business and it has touched many sectors: including shopping. To be closer to his customers and provide them appropriated product, in June, Amazon added connectivity to Facebook in order to provide product suggestions based on likes and favorites pulled from your social graph. By connecting the customer’s account, they allow Amazon to scrape the interests and favorites of their friends. Thanks to that they can then view suggested gift ideas based on this data and to something that can interest them. Amazon also will populate lists of items that are popular among all of your friends, as well as suggestions based on your own interests.
It is a kind of online advertising, a personalized advertising, which can reach more people. Merchants can function as both media properties and audience networks because they already possess targeting criteria that actually matters: consumer behavior or brand-preference data that can power interest-based advertising across the web. Retailers know which brands consumers interact with on their sites, and that is indicative of consumer desire. The brand image is also important, it influences consumer’s opinion toward the brand, and so their buying behavior too.
A consumer research reveals that Amazon.com is the top performing brand in the U.S. based on “trust” and “recommendation”, one of the best perceived brands in 2013. Consumers also have many options for forging a personal bond with the brand, including user profiles, reviews and ratings, wish lists and Listmania lists for recommending favorite products, what make them prefer this brand, because they feel a stronger relationship with this brand than with other brands.
Technological point of view
Competing technology development: Apart from online retailing, Amazon also produces consumer electronics, notably the Amazon Kindle e-book reader and the Kindle Fire tablet computer, and provides cloud computing services. Kindle’s Chinese competitors are Hanvon, boyue, Iriver, Yidu, Devia, Kingjim. In order to measure up to the others Chinese ereaders Amazon has to keep an eye on his competitors’ innovations and regularly improve the Kindle so it stays popular. However, Amazon has two strong advantage compared to its competitors: The first is that the company designed the Kindle to interface seamlessly with Amazon’s online store.
Amazon.com hosts more than a million titles in electronic format. Because the Kindle is wireless, you can access the store without connecting the device to a computer. You can buy a book or subscribe to an electronic version of a newspaper on Amazon and download it directly to the Kindle. The second advantage is that Amazon has a large customer base. R&D Activity: Amazon has a solid Research and Development budget that is increased every year. Their last focus was to develop amazon’s main product: the Kindle, an electronic reading device. The Kindle has been launched in China last year and has broken into the Chinese market with great success.
The newer models offer WiFi connectivity. The original Kindle had a port that allowed users to save titles to a memory card, extending the device’s capacity, which appealed to people who like the idea of having an electronic library that takes up very little physical space. The models available today do not have card slots, but available Kindle models come with 2 or 4 gigabytes of storage space, and Amazon also stores your entire library in the cloud, allowing you to delete and re-download titles at will to organize and save space.
Maturity of technology:
Manufacturing maturity and capacity: The kindle is partly manufactured in China even though it’s an American licensed product. The product is manufactured as follows: The flex circuit connectors are made in China because the US supplier base migrated to Asia. The electrophoretic display is made in Taiwan because the expertise developed from producing flat-panel LCDs migrated to Asia with semiconductor manufacturing. The highly polished injection-molded case is made in China because the U.S. supplier base eroded as the manufacture of toys, consumer electronics and computers migrated to China. The wireless card is made in South Korea because that country became a center for making mobile phone components and handsets. The controller board is made in China because U.S. companies long ago transferred manufacture of printed circuit boards to Asia. The Lithium polymer battery is made in China because battery development and manufacturing migrated to China along with the development and manufacture of consumer electronics and notebook computers.
Consumer buying mechanism: The more popular is a product the more people are likely to buy it. The brand name is a very important factor in the consumer buying mechanism, if a brand is popular then the consumer is more likely to buy the product. They need a product that has already been talked about, tested and approved, so they can trust the product. In Amazon’s case, the Kindle is already very popular thanks to Amazon notoriety. Technology access, licensing, patents: Everytime Amazon decides to improve the Kindle, the company patents this new technology. However this has caused some lawsuits in the past, Amazon US has been hit by 2 law suits because of the patent behind the Kindle Paperwhite. 6 lawsuits related to patents disputes have been reported in 2013.