Amazon is one of the most easily recognizable names in the world and has wide-reaching effects on how we consume many products. However, the company is also affected by a number of external factors which may be beneficial or harmful to its overarching goal of providing its core value proposition and achieving profitability. Using this Amazon PESTLE analysis, we will examine these factors to determine how these various components affect the company.
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Political factors are some of the strongest determinants of the success or failure of any organization, especially a large multinational corporation such as Amazon. Let’s take a look at some of the ways political factors such as tariffs, legislation, political stability, international trade agreements, and tax policies affect Amazon.
However, since a landmark Supreme Court ruling in 2018, the company has been forced to collect sales taxes even in regions where it does not have a physical presence. Not only did this curb the burgeoning enthusiasm for online retail, but it also reduced the competitive advantage Amazon had over smaller e-commerce platforms.
Nations that heavily tax e-commerce platforms, such as Amazon, reduce the profits and competitiveness of the company by cutting down on their net revenue. They also cut down on profits by lowering their sales volume since they make their products more expensive since these higher costs are passed on to buyers.
The maintenance of such factors requires a stable political environment and strong government institutions which can regulate both the private and public sectors. This explains why Amazon has such a strong presence in developed nations, but has been dealing with significant difficulty in expanding to developing and least developed countries.
However, the Chinese government has put in place certain measures and policies to stifle the growth of the company within the country and instead promote local online retail giants such as Alibaba’s Taobao and Tmall, JD.com, Suning.com, and Pinduoduo. This eventually led to Amazon closing down its Chinese subsidiary (Amazon China or Amazon.cn) in 2019.
Economic factors such as consumer spending patterns, inflationary and fresh new pressures, interest rates, and exchange rate fluctuations all affect Amazon. Let’s more closely examine how these various external monetary factors influence the growth of the company.
However, suppose customers cannot afford these products due to economic downturns, which reduce their purchasing power, such as recessions and inflation. In that case, consumer spending reduces significantly, and with it, Amazon’s revenue. Despite this, recent trends have shown that online stores such as Amazon are usually the least affected by such economic conditions due to the necessity of the services they offer to consumers.
For example, exchange rate fluctuations can affect the competitiveness of the company within different countries. If the currency with which Amazon purchases a majority of its product strengthens against another currency, it makes these items more expensive and thus less attractive to buyers.
Similar fluctuations can also cause the company to incur losses across a vast number of situations, such as paying employee wages, investments in various countries, as well as revenue. It is important to note that in certain situations, this can also work in favor of the company as well.
For example, such nations offer a large and growing market that is often underserved and offer the company an opportunity to gain a significant foothold in the market. Increasing internet penetration is also another reason why e-commerce platforms are becoming more popular among developing nations, a trend that Amazon can leverage.
Developing nations offer low-cost products and labor costs as well. Such nations also usually offer a number of incentives to companies such as Amazon in order to attract these businesses. Such nations also offer a pool of developing talent for the company.
The key advantages this economic concept offers include increasing cost savings, better supply chain efficiency, market dominance, a stronger ability to diversify into new markets, and in summary, a higher competitive advantage over smaller companies in the same field.
These same supply chains enable Amazon to keep its costs low, as it can leverage economies of scale and source products from low-cost regions. This enables Amazon to offer competitive pricing to its customers, which is a key driver of its success. International supply chains also play a critical role in Amazon’s logistics and delivery operations. Having a global network of suppliers allows Amazon to quickly and efficiently move products from one part of the world to another.
Favorable social trends form a strong part of what makes Amazon a highly successful company. Let’s take a look at some key social factors that are involved in the rapid growth of the company within the last few years, as well as how Amazon was able to successfully capitalize on these trends.
There are several factors behind the popularity of online retailers, such as convenience, better Internet and payment processing services, competitive pricing, the availability of mobile phones, improved logistics, and delivery services, the exponential rise of social media marketing, and a more comprehensive selection of available products.
Currently, eco-friendly practices are a topical issue for many consumers from Western nations and influence the popularity of products on Amazon. Similarly, suppose customer research has shown that consumers now prefer certain pricing models or place more emphasis on delivery times. In that case, it will be necessary for Amazon To shift its business model accordingly to keep up with these demands.
Also, cultural considerations affect Amazon’s decisions on how it markets its products and services to the public, as well as the various marketing channels and themes it would choose to promote. Issues such as local dialect and common payment methods are also important issues considered by the company when dealing with a diverse range of regions with unique cultures.
However, many older individuals are less tech-savvy, and Amazon will need to invest significant resources in bridging this gap and creating trust among this customer segment. Another way an aging population may affect Amazon is by reducing the number of young workers available to fill in physically demanding roles, which are unsuitable for older workers.
Additionally, some people worry that Amazon’s dominance in the e-commerce industry could lead to higher prices and reduced consumer choice. Critics have accused Amazon of not paying its fair share of taxes, which deprives governments of much-needed revenue.
Furthermore, Amazon’s shipping and packaging practices have been criticized for contributing to its carbon footprint and generating a significant amount of waste. Amazon’s use of facial recognition technology has also raised concerns about privacy and the potential misuse of data.
The company is also committed to price competitiveness and affordability. By driving down prices for many consumer goods, Amazon has made products more affordable for people around the world. Amazon is also a global leader in technological innovation, and its research and development have had a positive impact on many other industries and sectors.
Amazon is committed to philanthropy and has donated millions of dollars to charitable causes, including supporting disaster relief efforts and education initiatives. Moreover, Amazon has helped small businesses reach a global audience through programs such as Amazon Marketplace and Amazon Web Services.
The technological factors that impact Amazon play a significant role in the company’s success. As a technology-driven company, Amazon continually embraces new developments and integrates them into its business model. Let’s explore the technological factors that affect Amazon, including artificial intelligence, automation, and innovations for packaging and delivery.
By using a decentralized ledger system, Amazon could track the movement of goods from the supplier to the end customer, ensuring that each step of the process is recorded and verified. This would increase trust and accountability throughout the supply chain, as well as reduce the risk of fraud and counterfeiting.
Additionally, blockchain technology could be used to improve the security of Amazon’s payment system, enabling fast, secure, and transparent transactions. While Amazon has not yet fully implemented blockchain technology, the company is undoubtedly actively exploring its potential benefits and evaluating its feasibility.
Amazon is a company that requires solid legal frameworks to effectively carry out its operations across the globe. However, the company is also subject to the laws of the countries it operates. Let’s carefully examine how some of these laws affect the operations of Amazon.
Copyright protection and patent laws are also quite important since they protect a number of companies’ technologies, such as their unique algorithms, packaging, and delivery technologies. Amazon also makes use of patents and IP registries as a way of protecting brands that use their services from counterfeiting.
These antitrust laws involve actions such as scrutinizing mergers and acquisitions by the company, as well as imposing heavy fines on the company for failing to comply with these antitrust laws.
Cybersecurity legislation affects the company in a number of ways, including providing compliance requirements and standard protocols for practices that involve personal user data and national security, determining the liability and possible punishment of the company if it breaches any of these standards, and building consumer trust between Amazon and its users.
Understandably, in a bid to meet these regulations and avoid possible data breaches, the company has invested heavily in data encryption, firewalls, access control to its network and user data, as well as intrusion detection and prevention.
This legislation affects the companies in multiple ways, which may lead to increased or reduced overhead costs in the long run and therefore affect their price competitiveness regarding other online retailers. For example, an increase in the minimum wage would increase the cost the company incurs In terms of wages and, by extension, reduce their profits. The company may, in turn, choose to hike Its prices to its final consumers in an attempt to maintain its revenue, eventually leading to more expensive products and less price competitiveness.
The company has attempted to address these issues by improving its technology and ensuring that it complies with the best practices in terms of environmental law. However, it has faced several lawsuits over the years from both environmental activists and governments concerning these issues.
Environmental factors refer to the impact of external factors such as climate change, natural disasters, and regulatory policies on the company’s operations. Let’s take a look at a few of these.
With respect to this, the company has pledged to achieve net-zero carbon emissions by the year 2040 through an integrated program known as the Amazon Climate Pledge. Some of the key components of this program include investing in sustainable technologies and energy sources, improving its packaging technology and systems in order to reduce wastage and pollution, promoting the use of electric vehicles among its delivery and logistic services, using sustainable building materials, and investing in carbon offset technology.
While all of these goals are targeted towards achieving the net-zero goal set by the Paris Accord, it is important to remember that investing in sustainable technology is quite capital-intensive and will certainly affect the overhead of the company for years to come.
To mitigate these risks, Amazon has implemented measures such as increasing the resilience of its infrastructure and enhancing its disaster response capabilities. However, it is important to remember that such measures also increase capital costs and therefore drive up the prices paid by the final consumer.
Additionally, they have introduced a program that encourages customers to recycle their packaging materials. Amazon has also invested in technology that optimizes packaging to reduce waste, and they have committed to using 100% recyclable materials in their packaging by 2025.
From the above, it is clear that a wide number of factors affect the ability of Amazon to operate. Some of these factors may act in their favor, while others are detrimental to the success of the company. This analysis has highlighted these key issues and how the company has developed strategies to capitalize on or mitigate their fix in order to achieve long-term profitability, expansion, and market dominance.
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