Essay on Amazon: Pestle Analysis

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Essay on Amazon: Pestle Analysis

Introduction:

Amazon was founded in the year of 1994 by Jeff Bezos which progressed to be an industry leader in e-commerce today. Bezos original business idea was to be a bookstore however he saw the opportunity to diversify his existing business to be more than just a simple bookstore. Bezos decided to expand and operate in many different segments of the market the three main areas being, electronics, media and other merchandises. Although Amazon is a market leader against business such as Google, Netflix and eBay. There are many external factors that affect Amazon which I will highlight in this report, that the director has asked for me to produce.

Analysis of the business:

Political:

A political issue which affects businesses is trade protectionism, this is when trade barriers are implemented to toughen the level of imports and exports allowed in a country. This is an issue which is being put forward by the trump administration. By introducing trade protectionisms, it will make it difficult for business that are not native to the USA to operate successfully there. (Diamond.2017) Although Amazon is not a foreign business in America the materials which they import are from these foreign countries therefore it might hinder their operations if tariffs are introduced. Not only will Amazon face issues with their operation they may take a hit to their overall business image and name if buyers think they are getting exploited by higher prices that amazon might have to charge in order to be able to cover their costs. This will leave Amazon with the decision of whether or to they will be passing their costs on to their customers. Another key political issue which Amazon are going to have to face is Brexit. Brexit is the departure of Britain from the European union.

As of right now the Britain is still a part of the EU but once they leave the will also lose benefits which come with being a member of that trading bloc. The government of America and the British government are deciding on deals they can have with trading between themselves. (Gilchrist:2017) If an agreement is made then it may be beneficial to Amazon in terms of helping them to operate more smoothly in their market. As Amazon was originally an American business but expand to different countries, while operating in the UK and having this potential trade agreements it may lead to Amazon being able to import from foreign countries without the extreme taxes being placed on it. In contrast to the trade protectionism that could be placed by the Trump administration by having the agreement between the UK and America instead it would be beneficial to Amazon as they will be able to keep growing as a business and become more profitable.

Economic:

As a global business Amazon will constantly be faced with economic difficulties as they are constantly changing and functioning in different economic countries. The main threat that Amazon will face in the UK is Brexit, this will have a knock-on effect with both Amazon operations and their consumers. They will be faced with new taxations which may negatively affect their profitability, as the cost of their materials may see an increase especially in the materials which are imported from other countries. As of right now whilst the UK are still apart of the EU, they can trade freely within the EU however they can also trade with countries outside of this trade bloc. However, once the Brexit deal is complete the UK might not be able carry on functioning as they used to, there is a high chance that Brexit will mean EU customers will face extra taxes on goods. (Johnson 2016)

Recession is another key indicator in the environment that could affect Amazon. For instance, the economy of china is nearing a standstill, not only does this having a negative effect on China itself as a country. The Chinese recession also poses to threaten Amazon as they envisioned themselves expanding their business into the Chinese economy. As of right now the leading company that operates in china is Ali Baba, which is one of Amazons competitors, Ali baba have a competitive advantage against amazon as they wanted to penetrate the Chinese market, but Ali Baba beat them to this. If Amazon were able to move into the Chinese market this would benefit them massively as they would be able to increase their profitability and market share

Social:

A major issue which has a great effect on society is the battle with health. There are currently around 700 million people who are classified as being overweight, this leads to immense pressure on the government to promote activities and diets which encourage people to look after themselves and decrease the amount of people being classed as overweight (Bedard,2017). The issue that Amazon faces as a company is that they are seen to be encouraging people to not lead an active lifestyle. This might be the image they give off as they provide a service which allows users to order whatever they want and it will be delivered right to their house, there is another service that amazon provides which is Amazon Prime, this service allows customers to have access to next day delivery but in some cases the same day delivery. By offering this service to consumers it seems like Amazon is contributing to the obesity pandemic as they unintentionally are promoting the non-active lifestyle.

Although it may look like Amazon is negatively impacting society a survey conducted by recode poll discovered that roughly 20% of Americans feel as if Amazon have been positively impacting on society unlike many other tech companies such as Apple, Facebook and Google.

Technological:

As time goes on there are new developments in the world of technology which affect many businesses. Therefore, increased levels of innovations are a requirement to be able to meet the demand which businesses face due to the increasingly globalised and interconnected supply chains which leads to them operating in a more efficient manner. (Sindi and Roe, 2017) Many businesses operate by working smarter not harder. This is visible the way in which Amazon operate, from visiting one of their warehouses I was able to see that they have a piece of machinery which allows for them to scan the dimensions of the packaging in order for them to be able to sort it out much easier and quicker than what they were able to do before. After the new machinery scans the dimensions it is automatically sorted it into the right section this makes Amazons operation run smoother as there is a decreased chance of human error as everything is completed with the use of a computer. This new piece of technological machinery is very beneficial to Amazon aa they are saving on time and money. Amazon are able to save as they don’t need to employ staff to manually sort the packages into their sections.

In this industry the likes of Ikea already give their customers the choice to visualise how furniture would look in their rooms if they were to purchase it. (Mintel 2018a). There are currently arrangements being made by Amazon with plans to also introduce virtual reality tools. This will allow Amazons customers to envision the products which they are looking to purchase, this is possible due to the increase in smart homes meaning consumers can interact more with businesses and their products to ensure they are purchasing the right items for them.

Legal:

Multinational companies are having increased pressure on them to carefully asses their clients, they are encouraged to do a risk assessment on clients who are politically sensitive or clients who appear on terrorist watch list need to be authorised.(Gov 2016). Currently Amazon is being prosecuted by the federal government as it seems as if they have sold goods to individuals who are on terrorist watchlists which violates the US sanctions. This shows that Amazon are showing a disregard for US laws but also laws internationally and safety for everyone. (Daily Mail 2017)

There are many rules and regulations that a business needs to follow if they are to operate successfully some are beneficial to businesses however others can really threaten the business. For Amazon a threat to their operations is the different consumer privacy acts. The main act which may have a huge impact on Amazon is the “California consumer privacy act 2018” this bill is meant to meant to increase the privacy right and protection of consumers. Major companies such as Amazon, Facebook and Apple are going to be required in 2020 to inform their customers fully of what they intend to do with their data. They need to inform their users of what they are collecting and how they are going to share the information they provide. (Newcomb 2018). Consumers will be given the option of opting out of their data being used this will be a very big threat to tech companies such as Amazon as they rely heavily on the data their users provide them with.

Environmental:

Businesses are being encouraged to be more environmentally friendly with how they operate. Green peace accused Amazon in 2018 of having poor environmental practices with how they operate their business. Green peace accused Amazon of being opaque in their submission of their data regarding the environment.