AMAZON PEST ANALYSIS

What is PEST Analysis

Pest analysis is an important strategic marketing and strategic analysis tool for a

company, it is used to as part of a company’s competitive strategy in order to identify and

evaluate the important external forces that might positively or negatively affect the company

(Walsh, 2019).

It is being used in conjunction to SWOT analysis, it analyzed external forces or factors.

Because there are a multitude of external factor that can support of hinder the growth of a

company, it is convenient and more efficient to divide the external analysis into more

manageable portions. This is achieved through the four components of PEST analysis, which

with the addition of the legal and environmental (ecological) factors, is also known as PESTEL

or PESTLE analysis (Walsh, 2019).

PEST analysis is an acronym of Political, Economic, Social and Technology. Political

factor is an analysis of what politics is doing to the business world, such as government

regulations and legal issue which affect a company’s ability to be profitable and successful (Post,

2018).

Economic factors examine outside economic issues that can play a role in a company’s

success, such as interest rate, unemployment, gross domestic product and exchange inflation

(Post, 2018). Social factors analyze the socioeconomic environment of the given industry’s

market to understand how consumer needs are shaped and what brings them to the market for a
purchase, such as the drive to eat healthier, the drive to be more mobile or the drive to care for

the environment (Post, 2018).

The last factor to be considered is the Technology factors. Technology factor analyze

technology that the company currently have or new introduce technology in the market, it is

important to assess technology from all angle, such as the internet effect to the company, current

technology that company has as well as government spending on technology research (Post,

2018).

Company Background

As I have mentioned in my previous SWOT analysis essay, one of Amazon strength is the

largest online store in the world, a lot of retailers try to compete with Amazon, but they only see

Walmart as their one and true rival.

Amazon opened its door in 1995, operating only from the garage of its founder, Jeff Bezos. It

opens for business as an online bookseller, within a month, they had shipped books to all 50 U.S.

states and to 45 countries (History.com Editors, 2019).

It eventually morphed into an e-commerce giant and leader and currently the number 5 on

the 500-fortune company (Fortune.com, 2019). As their vision and mission company statement

available on their website, which is “to be Earth’s most customer – centric company, where

customers can find and discover anything they might want to buy online, and endeavors to offer

its customer the lowest possible prices” their consumer based has also grow wider and bigger

(About Amazon, 2019). It sells everything from groceries to furniture to live ladybugs, it also

offers services such as AWS, which is a subsidiary of Amazon that provides on-demand cloud
computing platforms on a metered pay-as-you-go, and also revolutionize the way people shop as

well as enhance customer expectation from other retail companies (Smith, 2018).

It mainly serves consumer through their website, amazon.com, as it grows it also operates

through various international websites, such as www.amazon.co.jp, www.amazon.co.uk and

www.amazon.cn to name a few. Its customer base has grown, they also operates through various

international websites, such as www.amazon.co.jp, www.amazon.co.uk and www.amazon.cn to

name a few. Even though it headquarters in Seattle, WA, Amazon has several technical location

centers, fulfillment and distribution center in the EU, South Africa and India.

Currently, Amazon employed 647,500 around the world, 275,000 employees in the

United States and has created over more than 680,000 jobs in the United States in addition to

their direct hire (About Amazon, 2019).

Amazon PEST Analysis

Political Economic
Political stability of developed countries, especially the U.S.A. and Increase disposable income
European countries (opportunity) (opportunity)
Fluctuate exchange rates
(threat)
Flourishing retail industry
(threat & opportunity)
Reduce job openings and
Governmental support for e-commerce (opportunity & threat) workforce (threat)
Increase competition from international online retailers (threat)
Taxes in foreign developed countries, especially the U. S.A and
European countries (opportunity & threat)
Social Technology
Increase cybercrimes
Increase online buying habits (opportunity) (threat)
Increase IT efficiencies
(opportunity)
Increase AI (opportunity)
Advancement of QR code
Increase consumerism in developing countries (opportunity) (opportunity)
Increase wealth disparity/gap (threat & opportunity)
The rise of ethical e-commerce (opportunity)

(Greenspan, 2019)

Political Factors

Per an article on www.Panmore.com, Amazon benefited from political stability,

according PEST analysis framework this counted as opportunity (Greenspan, 2019). For

example: in 2017 Amazon reportedly raked in more than $5.6 billion in U.S. profits in 2017, but

essentially it paid $0 in federal income taxes, this is due the 2017 Tax Act, which was signed into

law by President Trump in late December, slashed the corporate tax rate to 21% from 35%, but it

also instituted a mandatory one-time tax on accumulated earnings of foreign subsidiaries as well

as the excess stock based compensation deductions (Henney, 2018).

In the U.S itself, Amazon could expand its brick-and-mortar operations in the to

complement its e-commerce business with no issue, which is an opportunity for Amazon.

Recently Amazon partner with Kohl’s to strengthen its physical presence, while it means

bringing more traffic to Kohl’s (Soergel, 2017).

The U.S. government also does not limit Amazon’s expansion to relevant market, which

is count as an opportunity for the company to grow. The most notable expansion recently was

when Amazon purchased Pillpack, which is counted as an its increasing interest in the healthcare

market (LaVito and Hirsch, 2018). The same external factor also could also be a threat because

of rising competition, such as that involving Chinese online retail firms that are expanding their

operations (Greenspan, 2019). Notable Chinese e-commerce such as Alibaba Group, JD.com Inc

and Tencent Holdings Ltd (Gouveia, 2017).

 As Amazon grew internationally, they also have to abide and follow local regulations, for

example France is preparing a new digital tax that will go into effect on October 1, 2019, which

they called GAFA tax, a reference to Google, Amazon, Facebook and Apple, potentially this tax

will raise hundreds of millions of euros for the country every year (Farivar, 2019). This external

factor could count as a threat in SWOT analysis. This tax charges a 3 percent tax on any

company that has a global revenue of more than 750 million euros ($832 million) and at least 25

million euros (about $28 million) of revenue in France (Farivar, 2019).

It is reported that France’s government has said that the 3% digital tax aims to level the

playing field between big tech companies and local business (Schulze, 2019). In response, it is

reported that Amazon is raising seller fees by 3% for thousands of small and medium-sized

business in France (Schulze, 2019). It’s being argued that this tax is discriminatory and harmful,

President Donald Trump administration initiated an investigation into the measure and threatened

retaliatory tariffs, ultimately it will result in higher prices for consumers (Schulze, 2019).

From its inception, Amazon was profited tremendously by local state and cities providing

tax subsidies to Amazon to excel. Not only Amazon, Walmart is also benefited from such tax

subsidies. From my research, avoiding sales tax was what drove the company’s decision to locate

in Seattle (Mitchell, 2014).

Had the congress passed an internet sales tax bill years ago, Amazon wouldn’t be able to

posses the level of market power it now has. When it was announced that Amazon is looking for

a second headquarter location, many cities and states are offering Amazon eye-popping tax

subsidies to win, even though smaller, existing tax incentives have already been offered to

Amazon. According to Good Job First, a nonprofit that tracks state breaks, since 2000 Amazon
has received $1.15 billion in 129 communities in the U.S. passing the previous leader in this

category, Walmart (Rayen, 2018).

Economic Factors

One of economic factors that affect Amazon is disposable income. According to an

IBISWorld report, it is expected that consumer disposable income is growing and so does

consumer buying power, this is beneficial for retail sector as consumer will always have a

need to purchase for something from household goods to luxury items and it is expected that

most purchase will be made online (Guattery, 2018). This increase disposable income could

should be an opportunity for Amazon to reach its maximum potential.

Another example of economic factors is exchange rates. Exchange rates fluctuate

every day, in 2017, Amazon net sales from international business accounted for 30.52% of

Amazon consolidated revenues, therefore the business is subjected to currency exchange risks

to a great extent. For example, if the U.S Dollar weakens year-over-year relative to currencies

in Amazon international locations, its consolidated net sales and operating expenses will be

higher than if currencies had remained constant (Dudovskiy, 2018).

Likewise, if the U.S. Dollar strengthens relative to currencies in Amazon international

locations, its consolidated net sale and operating expenses will be lower than if currencies had

remained constant (Dudovskiy, 2018). It is reported on Amazon annual report that foreign

currency exchange rates impacted net sales by USD5.2 billion in 2015, USD 550 million in

2016 and USD 210 million in 2017 (Dudovskiy, 2018).

Flourishing retail industry can be seen as a threat as well as an opportunity to Amazon.

Flourishing retail Amazon means consumer will still do a lot of shopping and it means this
industry will also continue to grow and gives Amazon an opportunity to excel even more.

However, this is not only an opportunity to Amazon, but also to other retailers. As Amazon

strengthening their presence in different markets, by acquiring new smaller companies, it

means that Amazon will also acquire new competitor. For example, when Amazon acquired

Whole Foods, they directly competing with Walmart in the grocery shopping, or when

Amazon bought Zapos.com, they directly competing with other footwear retailers, such as

First line and even footwear manufacturer, Nike.

Last example of my economic factor is reduced job openings or workforce. Amazon is

advanced Tech Company and currently facing criticism for offering fewer job opportunities

and prefer to use technology where is possible, this news affected Amazon’s image poorly, as

it means increase rate in unemployment. Even though the company denied this news,

however, Amazon announced a program for those employees who want to quit, in which it

will offer $10,000 plus three month gross salary for those who want to quit jobs and start their

own delivery services for Amazon packages (Farooq, 2019).

Social Factors

One of example of social factors is increasing online buying habits. According to

IBISWorld Report 45411A, it is expected that over the five years to 2019, industry revenue

has increased at an annualized rate of 14.1% to $546.1 billion, including projected growth of

11.4% in 2019 (Spitzer, 2019).

In adjunction to SWOT analysis, this social factor is seen as an opportunity. Amazon

stands to benefit from increasing online buying habits, as more people around the world prefer

to buy products through the internet. According to same IBISWorld report, the E-commerce
sector growing steadily encouraged by the ease of ordering at home and the ability to quickly

compare prices and conduct reviews among retailers (Spitzer, 2019).

Another example of social factors would be increasing consumerism in developing

countries, which could count as an opportunity. An increasing degree of consumerism create

opportunities or increases the potential success of Amazon.com generic strategy for

competitive advantage and intensive strategies for growth for growing the e-commerce and IT

service business, as the company looks to expand its global online retail operations in these

locations (Greenspan, 2019).

My next example of social factors that could count as a threat as well as social factors

would be increasing wealth disparity (Greenspan, 2019). The average Amazon customer has a

higher household income than the average Walmart in-store shopper by nearly $10,000, and

since Amazon is an online based, a person needs a bank account or debit/credit card to make a

purchase on Amazon (Del Rey, 2019). Which means, Amazon is loosing more than 8 million

low-income households that do not have a bank account and thus it partnered with Western

Union, launching a program called Amazon PayCode, in which it will allows online shoppers to

complete an order on Amazon and then ay for that order in cash in the next 24 hours at one of

15,000 Western Union locations (Del Rey, 2019). This move is to be focus on cutting into the

nearly 40% of in-person consumer transaction in the US that are still made with cash, which

Walmart currently is a major player. (Del Rey, 2019).

As Amazon plans to increase its Amazon prime membership, Amazon introduced a 45%

discount to Amazon Prime monthly fee for those shoppers who receive certain forms of

government assistance. In March 2018, Amazon added Medicaid recipient to the group eligible

for that discount (Del Rey, 2019). This move is to be expected as PillPack, who was bought by
Amazon in 2018, currently accepting Medicare Part B and Medicaid (Plans We Work With,

2019)

Last example of my social factor is the rise of ethical e-commerce/activist. Consumer

awareness of the environmental and ethical footprint of their purchase is on the rise, this

including digital purchases and the “real or hidden” impact and cost of eCommerce-and

consumerism in general (Absolunet, 2018). Consumers are now more environmental conscious,

looking to minimal their environmental footprint, from using strictly organic products, minimal

waste, or purchasing products that they can reuse, recycle and not harmful to the environment.

To answer this social factor, Amazon’s sustainability team has been busy setting

ambitious goals on renewable energy, per an article on Forbes, it launched their largest wind

farm in Texas that contributes over 1 million megawatt hours (MWh) of clean energy to the grid,

and is working to install 50 solar rooftops across Amazon fulfillment center network by 2020

(Murray, 2018).

Technology

What is Amazon? According to an article on www.TheAtlantic.com it is the largest

bookstore in the history of the world, the largest online retailer, the largest Web- hosting

company in the world, the most serious competitor to Netflix in streaming video, the fourth-

most-popular tablet maker, a sprawling international network of fulfillment centers for merchants

around the world and rumored to be close to launching its own smartphone and television set-top

box (Thompson, 2013).

 The e-commerce giant has evolved into so many things, we barely can keep up with it.

However, the core of Amazon is technology innovation and it continued to invest heavily in

information technology.

One of technological factors that could be a threat for Amazon is cybercrime. Cybercrime

affect all retailers, and according to an article on www.Statista.com, the expansion of e-

commerce has led to more incidents of cybercrime. In 2018, there are 16,128 cases of online

identity theft and 65, 116 cases of non-payment or non-delivery fraud which were reported to the

U.S. Internet Crime Complaint Center (Clement, 2019).

With that said, Amazon can further improve its security because this external factor

threatens the quality of customer experience as well as the integrity of Amazon’s business

(Greenspan, 2019).

Another example would be increasing IT efficiencies, which could count as an

opportunity. To maintain the quality of customer experience and to always improve convenience,

Amazon opened several technical centers in Europe, South Africa as well as India, these

locations can be found on the Amazon’s website.

Amazon also invent the one-click buying process or Amazon 1-click buttons, which was

patented by Amazon back in 1999 and was fiercely protected by Amazon, was invented to

minimize and eliminates shopping cart abandonment (Pathak, 2017).

Amazon is big on technology, Amazon CEO, Jeff Bezos, embraced and believe that AI is

the future and has started to integrate their AI technology into their products. For example,

Amazon also enhance customer shopping experience by allowing customer to placed orders

through Amazon Alexa/Echo, which is an AI service of Amazon, for business consumer they also
offers AI services, which are called Amazon Lex, Amazon Polly, Amazon Rekognition and

Amazon Machine Learning, which also are accessible through an API call or the AWS

management console (About Amazon, 2019). free in store return at Kohl’s, which don’t require

us to pack the return item and print labels, subscribe and save button, in which consumer can get

5% up to 15% on auto deliveries

From my research Amazon needs to focus on governmental support, especially the U.S

since according to an article posted on www.ILSR.com, a study by three economist at Ohio State

University showing a striking evidence of how much Amazon’s dominance of the retail

marketplace is owed to nearly 20 years of favorable tax treatment (Mitchell, 2014).

Had the Congress passed an internet sales tax bill a decade ago, the situation would be

different, back in 2004, Amazon had not yet in possession of the level of market power it now

has. For years, Amazon CEO has long downplayed the importance of sales tax, however the

same study revealed that Amazon’s success, its track record of shuttering local businesses, is as

much a product of government favoritism as it is of its own ingenuity (Mitchell, 2014).

As Amazon builds up its distribution network, it’s hit on a trick long practiced by the

likes of Walmart: using the federal government to help pay its worker (Rayen, 2018). A new

study in the state of Ohio posted on www.TheRepublic.com shows that more than 700 Amazon

employees receive food stamps, which counted to more than 10% of tech giant’s 6,000 strong

workforce in the state (Rayen, 2018)

Also, Amazon has obtained at least $123 million in state tax incentives to place

warehouse and data center locations in Ohio, which means Amazon gets a bounty to create jobs
in Ohio and then a good chunk of the jobs are so low-paying that workers have to seek federal

assistance, providing a second subsidy for the e-commerce giant (Rayes, 2018).

I believe Amazon is ready to

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