Causes and Effects of the Amazon’s Deforestation

Dr. G. Leckebusch
Deforestation in the Amazonas Basin and the Climate Policy of Brazil – A Critical Review
The contemporary issue of deforestation is seen as a rising global concern involving the complete clearance of forests either by cutting or burning. Forest clearance is seen to fluctuate however rates of decrease across the Amazon basin where as large as 30% between 2001 and 2002 (Santilli et al, 2005). Optimistic climate change models show that the median distance between the areas in the Amazon rainforest and their closest future (2050) climate model according to the prediction based on temperature and precipitation change increase to over >475km (Feeley and Rehm, 2012).

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Deforestation affects the Amazon basin on a large scale whereby rates have exponentially increased since 1991 (Fearnside, 2005). Cattle ranching within the Amazon are seen to account for 70% of the clearing activity (Fearnside, 2005). This argued upward trend of deforestation is set to continue due to cattle, pastures and highways (Nepstad et al, 2001). Prior to this the Amazon remained largely intact until the “modern” wave of deforestation in 1970 due to the transamazon highway. Therefore due to modern issues such as global population increase, increased demand for land and resources forest degradation is becoming an important concern which needs to be addressed. With the original extent of the Amazon forest covering approximately the area of Western Europe (Fearnside, 1993a); reliable estimates are needed to monitor deforestation levels. Recent values of deforestation are seen in Figure 1.

 
It can be argued that there is no real explanation as to why deforestation rates fluctuate therefore Fearnside & Barbosa (2004) question whether the statistics produced are valid. However these estimates are needed in order for protocols to come into action. As high deforestation rates are contributing to the global concerns such as loss of biodiversity, greenhouse gas warming as well as the destruction of such valuable resource. Protocol’s can monitor these fluctuations however before prevention takes place the causes of deforestation need to be addressed.
Causes
Deforestation of the Amazon rainforest can be attributed to many different factors. Although the expansion of the highway infrastructure can explain part of the deforestation in the 1970s and 1980s it cannot be the sole reason (Schaeffer et al, 2005). As it does not provide the explanation for the issue in the 1990s when the infrastructure development came to an end however the rates of deforestation still remained high. Nowadays the current expansion of highways is seen as a consequence rather than a cause as blaming governmental organisations masks the real reasons. The primary underlying forces behind deforestation in the Amazon region are combined effects of cultural, demographic, economic, technological, political issues (Schaeffer et al, 2005). Then underlying governmental policies, as well as institutional, socio-economic factors interact among themselves and function as one, driving deforestation within the Amazon (Schaeffer et al, 2005).
More recently there have been different drivers of deforestation such as soybean and beef production which have therefore required a larger portion of land for production and the infrastructure involved due to globalisation. However these new drivers have not replaced existing ones they have been added to the ongoing list of deforestation drivers. These new plantations involve new infrastructure development which can expect to destroy more forest alone (Fearnside, 2001c). Infrastructures developments are seen as an added effect as the Forest loss in the 1990s would have been notably less severe were it not for the preceding infrastructure standing in its way.
These transportation links are seen to accelerate the clearing of rainforests. The Avanca Brazil Program created a development package for the period 2000-07 which included a US $20 billion development in infrastructure within the Amazon region (Laurance et al, 2001; Nepstad et al 2001; Fearnside, 2002a). This development was driven by the perceived need to transport the new production of soy beans. Particularly damaging roads where the BR-163 and BR-319 highways (Fearnside, 2005).
Large landholders are seen to be the most sensitive to economic change such as variable interest rates, financial returns, land prices and inflation. With Tax drivers been a strong driver of deforestation rates in the 1970-80’s (Mahar, 1979). With government subsidised credit at rates considerably lower than inflation meant that they became much scarcer after 1984. However in 1994 when Brazil set out the plan for a “Plano Real Reform” (Fearnside, 2005) hyperinflation dominated the economy however this resulted in land been at peak price reaching levels which were justifiable for production. As a result deforestation enabled claims to land and cutting for cattle pastures was the cheapest and most effective method (Hecht et al, 1988; Faminow, 1998; Fearnside, 1987/2002b). Due to Brazil’s recession deforestation rates declined throughout 1987-1991 as ranchers were unable to expand as quickly due to the government lack of funds for infrastructure developments. However the “Decree suspending incentives” (Fearnside, 2005) came into practice in mid 1991 which was the result of the most effective decline; evident in figure 2.

It has been argued that the peak in 1995 was a result of economic recovery due to the Plano real response however due to this the fall seen in 1996 and 1997 was a logical decision of the Plano Real to cut the rate of inflation; shows fluctuation in deforestation rates (Fearnside, 2005). These major rates of fluctuations where due to money availability, inflation rate due to most of the clearing been done by those who invest to medium/large cattle ranchers. In figure 2 it is clear to see that deforestation rates climbed per year which then remained constant for 4 years followed by a steep rise in 2002 to a new level.
Timber extraction has seen to be a cause of such rises as increased forest flammability has meant higher rate of loss. This undetected deforestation leads to severe damage that is visible on landsat imagery as deforestation (Cochrane et al, 1999; Nepstad et al, 199b). The role of logging increases the chance of forest fire as fires dry out large areas making a wider catchment susceptible to fires. Verissimo et al (1992) notes that forest fires create the damage of almost twice the volume of trees being harvested. Similarly a major resulting concern is the number of rainless days needed for a logged area is much lower to reach flammable conditions than for one that hasn’t (Nepstad et al, 2004).
Due to the above causes a global climate impact has occurred.
Global climate impact
Deforestation creates a large global climate impact which includes loss of biodiversity, reduced rainfall and global warming contribution; similarly a loss of productivity, soil erosion, nutrient depletion and soil compaction. A change in the hydrological regime impact involves watershed functions been lost and flooding. The percentage of water recycled within the Amazon basin is now seen to be 20-30% (Lean et al, 1996) rather than the previous figure of 50% (Salati & Vose, 1984). This at a policy view is not appreciated (Fearnside, 2004) as current levels of available water worldwide is seen as low. Results show that currently 150 million people live in cities with a persistent water shortage (defined as “having less than 100L per person per day”) and by 2050 is set to increase to almost 1 billion people (McDonald et al, 2011). The deceptive view of the potential deforestation rates increasing global precipitation levels misleads the idea that deforestation is bad.
Biodiversity loss is a result of deforestation which impoverishes the earth’s biodiversity (Capobianco et al, 2001).
Net emissions of greenhouse gases are increased as a result of deforestation through forest fires. Amazonian deforestation distinguishes a greater concern due to potential future emissions. In 1990 the net commission emissions from Brazilian deforestation represented 5% of the global total from a variety of sources (Fearnside, 1997b). However the concern is in the carbon stock in biomass within the Amazon which represents 38% of the tropical total (Fearnside 2000a:129). Likewise this release of carbon through tropical deforestation showed a release of 1.5 billion metric tons of carbon (GtC) to the atmosphere annually throughout the 1990’s; which can be seen as 20% of anthropogenic greenhouse gas emissions.
It can be seen that global climate models show that as precipitation decreases linearly there are increasing amounts of precipitation. The climate of Brazil changes due to the loss of tropical rainforests to pasture; the surface temperature increases by approximately 1° to 3°, precipitation increase and a decrease in evapotranspiration. This heating out the surface leads to localised upward motions that cause the formation of clouds which in turn produces more rainfall (Shukla et al, 1990). Similarly compared to rainforest cover the degraded pasture is seen to have a higher albedo value, with lower surface roughness and a shallower and sparser root system and lower available storage capacity for soil moisture (Shukla et al, 1990). Thus cannot retain the high levels of precipitation leading to higher rates of surface runoff.
Due to deforested areas been drier and more susceptible to forest fires, the ENSO triggered an extended dry condition in 1997-98 across the Amazon. This meant an increase in tree mortality and forest flammability especially in logged areas due to large areas burned releasing carbon to the atmosphere (Page et al, 2002). However even in non ENSO years global warming has been observed to be putting tropical regions at risk. Over the last 5 years droughts within the basin droughts have been detached from ENSO events but have collaborated with some of the highest temperatures on record (Gullison et al, 2007). If these droughts become more frequent and severe or the dry season lengthens due to deforestation or a reduction in rainfall due to global warming then a proportion of the carbon stored in the tropical rainforests will be released into the atmosphere (Santilli, 2005). So as Malhi et al (2004) states the undisturbed rainforests act as a “sink” for the atmospheric carbon which is yet to be released.
The effects of Amazon deforestation upon climate change is investigated using numerical experiments of an atmospheric general circulation model (AGCM) with set global sea surface temperature and the same AGCM joined to an ocean GCM (CGCM) over the global tropics. The joined model demonstrated a reduction in rainfall which was 60% larger compared to its control run (Nobre et al, 2009). Nobre concluded that amazon deforestation affects climate change and is dependent on AGCM’s. However there is a general agreement that amazon deforestation results in a local reduction in rainfall and an increase of surface temperature.
This abundant cheap land within the amazon needs caps on it to ensure all is not sold. As this means destructive, fire-based agriculture, such as cattle ranching and slash-burn-farming, will continue to thrive. In the Amazon an area the size of France has already been deforested, a large fraction of which is now degraded cattle pasture with minimal benefit for the natives (Schaeffer, 2005). Therefore sustainable development is the step forward.
 
 

Evaluation of Amazon’s Cloud Computing

Table of Contents

Summary

Introduction

Category 1: Compute

a.  Amazon Elastic Compute Cloud (Amazon EC2)

b.  Amazon Elastic Load Balancer (ELB)

c.  Amazon Lambda

Category 2: Database

a.   Amazon Relational Database Service (RDS)

b.  Amazon DynamoDB

c.  Amazon Elastic Cache

Category 3: Internet of Things

a.  AWS Internet of Things (IoT)

Category 4: Analytics

a.  Amazon Machine Learning(AML)

b.  Amazon Data Pipeline

c.   Amazon Elastic Map Reduce

Conclusion

References

In today’s technology-driven world ‘cloud computing’ is at boom. It is attracting companies globally with its unique characteristics like scalability, cost effectiveness, no upfront commitment. The AWS Cloud provides a collection of infrastructure services, namely computing, database, IoT, and analytics that are delivered on-demand, available in few clicks, with pay-as-you-go pricing. No upfront capital expense is needed in the addition of new services. AWS provides services suitable for any organization whether small or large. Launched in 2006, the AWS platform adds new services and regions (data centres) continuously since then. This report gives an overview of AWS Cloud and services which constitutes the platform.

Cloud computing refers to services and solutions that are delivered and consumed in real time over the internet. Cloud technologies are widely used by companies like Netflix, Instagram, Dropbox, Airbnb, & many more. The below three aspects are new in cloud computing: –

      On demand availability of unlimited computing resources, thus no advance planning is required for provisioning

      Allows companies to start with small scale & later on scale in or scale out hardware resources as per requirement

      Pay as you go model – You only pay for what you use, making cloud services as cost effective

There are many cloud providers like AWS, Microsoft Azue, IBM Cloud, Racksack, etc. However, AWS is the leading cloud provider worldwide recognized by Gartner group & Forrester Research. AWS has not only marked its presence over businesses but also over space. NASA’s Mars Mission was built using by AWS services to stream the images and videos of its spacecraft landing.

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Amazon Web Service (AWS)[1] “is a secure cloud services platform, offering compute power, database storage, content delivery and other functionality to help businesses scale and grow.” Initially it was built to handle Amazon’s internal online retail operations but soon it became one of the first companies to present a pay-as-you-go cloud model that is scalable. AWS is majorly infrastructure as a service (IaaS) but is comparable to other offerings like SaaS & PaaS (software/platform as a service).

 AWS portfolio comprises of more than 100 services categorised into functionalities.Below four functionalities are discussed in details in this report–

Compute

Database

Internet of Things (IoT)

Analytics

a.      Amazon Elastic Compute Cloud (Amazon EC2) 

Amazon EC2 helps to obtains virtual services which are known as computing instances on demand and within minutes. This helps in creating & deploying applications quickly. The instances can be scaled up or down using Amazon EC2 management console or automate the process using API. The instances can be present in same or different geographical regions, known as availability zones (AZ) which are connected by low latency network.

Companies like Airbnb[2] is using AWS platform from day one. At present Airbnb is using more than thousand EC2 instances & they are growing over time. Airbnb has saved the cost of almost one operations team by using AWS services. Ever since company migrated to AWS it was benefitted by the features of it. It can now handle the high demand rush more efficiently.
Benefits:
● Reliable – instances can be quickly replaced & provides 99.9% availability of instances as per SLA for each Amazon EC2 region.● Design – works well with various AWS services like Amazon S3, Amazon RDS, Amazon DynamoDB, etc● Secure – works in Amazon VPC for security & robustness 

b.      Amazon Elastic Load Balancer (ELB) 

Elastic Load Balancer automatically disperses the load evenly to numerous instances. Whenever client sends a request to it, the request is redirected to one of the available instances.

Researches indicates that IT companies like Wipro[3] which is basically service company faced a lot of challenges at service helpdesks initially. With high incoming traffic load of around 200,000 tickets each month it was difficult for company to handle them quickly & promptly.Kavitha Kadambi, general manager at Wipro, put it herself, “A cloud platform would give us the flexibility to scale capacity on-demand. It would also improve speed of deployment, enhance availability, and reduce operational cost.” (Wipro Case Study – AWS)Today, Wipro has moved to AWS solution & its services. It uses ELB and Auto Scaling to distribute the incoming traffic to EC2 instances and scales them

automatically when needed. This solution has made the life of Wipro employees much easier & comfortable.
Benefits:

Elastic ­­-    scaled of handling sudden changes in network traffic patterns

Secure ­-    security groups for the load balancer, which means you can allow traffic as your wish & rest everything is blocked.

Integrated– integration of 14 different AWS services

c.      Amazon Lambda 

AWS Lambda is a compute service which runs backend codes(functions) and response to actions such as objects upload to amazon S3 bucket, updates to dynamo DB tables, or in app activity. It allows developers to focus on developing applications without worrying about scaling, capacities, patching & administration of infrastructure to run the code and provides visibility in the performance by publishing real time logs to amazon watch. It allows applications to deliver great user experience like live streaming, rapidly displaying street address or image icons by responding to actions within applications. It is very cost effective. It allows user to pay only for the time the code is running measured in increments of 100ms.

Netflix[4] was the first users of AWS Lambda. It provides 10 billion hours of videos to millions of subscribers across world. In order to serve huge audience Netflix moved completely from its own data centres to AWS cloud infrastructure. Netflix is using AWS Lambda to create rule-based triggers to automatically encode large media files, backup validations, deployments of instances, and monitoring the AWS resources. This helps in removing inefficient processes to reduce error rates and saves time.

Benefits:
● Any existing Lambda functions can be used which is defined in workflows● No need to design a program to implement and execute them as Amazon SWF directly calls lambda functions● Lambda provides us the metrics and logs for tracking function performance.

a.     Amazon Relational Database Service (RDS) 

Amazon RDS allows to setup, operate & scale new databases behind the scene on single click thus providing durability, accessibility & availability to the data . There is no need to buy, rack & stack hardware, and no need to install software. In case of disaster event, RDS will switch over to the standby and you can replicate the data to another AWS region.

Amazon RDS has influenced hotel industries as well. One of the world’s largest hotel, Choice Hotels[5]International, Inc. with 6,800 hotels franchised in more than 40 countries and territories. According to Brian Kirkland (Chief Technology Officer, Choice Hotels), the hotel has seen about 300% increase in the volume of booking request over last 3 years. This made them to significantly adopt use of Amazon Aurora (Amazon RDS database engine) & other AWS services to develop new booking reservation system. It enhanced the performance and worked out to be very cost effective for the hotel.

 Benefits:

● Host replacement – in case of break down, it automatically switches to standby.● Automatic backups – backups everything automatically for recovery in case of failure● Software patching – apply latest patches to DB automatically using DB Engine Version Management

b.     Amazon DynamoDB 

It is a high performance, non-relational database service built for cloud. It is easy to use & it is very fast. It uses SSD (solid state drive) technique to store data which provides fast access to the data. It is very reliable as it automatically replicates data across multiple AWS availability zones to protect data.

Researches shows that online learning sites like Duolingo[6] uses Amazon DynamoDBto store 31 billion items which delivers lessons for 80 languages. The start-up company has reached about 18 million users globally who perform billions of free Duolingo exercises. It uses DynamoDB as it is highly scalable, reliable & proves

greater performance of approx 24,000 read units/sec and 3,300 write units/sec.Duolingo also uses other AWS services like EC2, Elastic Cache, S3, RDS. Going forward, Duolingo is planning to use further complex services like AWS Lambda & Redshift.

Benefits: 

● Managed service – No need to install SQL or configure distributed database cluster. In order to meet I/O performance requirements, it scales, handles, and re-partitions data over more machine resources.● Durable and available – It replicates data over different availability region for disaster recovery● Flexible -allows creation of dynamic tables including multi-valued attributes. 

c.  Amazon Elastic Cache 

It is a web service which helps to improve performance of web applications.It allows users to retrieve information from fast, managed, in memory caches instead of slower disk-based databases. It can significantly improve latency and throughput for many heavy read applications.

PlaceIQ[7], is a company which provides information about type of people present in a particular location at a particular time. Basically, it is a location intelligence company.

Therefore, there is a need to process huge amount of data at backend & handle real time challenges. PlaceIQ turned towards Amazon ElastiCache as “Amazon ElastiCache provided a turn-key approach to installing, managing, and scaling a large Memcached cluster,” says Steve Milton,CTO and co-founder of PlaceIQ(AWS Case Study: PlaceIQ).The company showed revenue profit upto $1000 per month & performance improvement by 83 after switching to AWS solution.

Benefits:
● Performance -stores data in-memory and cache to provide quick responses to applications.● Fully managed – automatically monitors the underlying infrastructure for hardware provisioning, software patching, setup, configuration, failure recovery,etc● Scalable – It can increase or decrease DB instances as per requirement

a.      AWS Internet of Things (IoT)

AWS IoT is a cloud platform that lets connected devices- car, light bulbs, sensor grid and more to interact easily & securely with cloud applications and other. All the AWS IoT services are serverless that means they can take full benefit of elasticity of the AWS Cloud & are scalable. AWS IOT provides edge-based service & cloud-based services.

AWS edge-based services are AWS FreeRTOS & AWS Greengrass & has below functions : –

connect the devices securely

Gather data

collect intelligent actions locally, even when connectivity is down

AWS cloud-based services are AWS IoT Core, AWS IoT Device Management, AWS IoT Device Defender & has below functions: –

Quickly onboard large and diverse group of devices

Maintain group health

Keep the group secure

On top of this we can analyse the IoT data using AWS IoT Analytics technology, having below functions: –

Easily analyse IoT data

Integrates seamlessly with Amazon QuickSight for visualisation and Amazon SageMaker for hosted machine learning

Startup company like Zimplistic[8] has made Rotimatics, a smart device which can make fully baked rotis in less than a minute. Rotimatics has earned more than $20 million from revenue and a total of 10 million rotis have been made ever since it is launched. The success of Rotimatics goes to IoT capabilities of AWS which improved the performance of device by responding to devices which are connected to it & troubleshoot. More user data is available now about their usage patterns, gauge feedback, satisfaction level & also about favourite recipe. With AWS we pay as we consume the cloud resources, keeping our IT cost aligned to business growth.

As said by Rishi Irani (Co-founder & CEO Zimplistic), himself” The market for smart devices in the home is flourishing, and AWS IoT services are helping us be part of that development by supporting our Rotimatic flatbread-making robot” (Zimplistic Case Study-AWS)

a.  Amazon Machine Learning(AML) 

AWS AML service helps to develop smart applications using predictive analysis which are based on user’s data. Machine learning technology identifies patterns in data and build mathematical model using these patterns. So that the predictions on new data can be made using these models. It uses “industry-standard logistic regression” algorithm to generate models. These applications can perform important function like demand forecasting, predictive customer support, fire detection and quick decision. In addition to this we can use AML for email analysis, product reviews, forms or fund transfer and recommend correct actions to different teams.

Started in 2008, Buildfax[9] worked on aggregating distributed building permit data across US.The biggest customer base of Buildfax is insurance group which spends annually billions of dollars on roof losses. Insurance company depends on data from buildfax for creating policies & premiums.

Initially, buildfax used model based on ZIP codes, Python and R languages to estimate the age & conditions of roofs. It was a complex approach & doesn’t produces desirable results. Hence, they switched to AML which was easier, faster & more accurate solution. They used data from public sources and customers data to build models. The company can now build models within few weeks as well as became capable of providing 80% accurate results.

Benefits:

● Easy to create machine learning models from data stored in amazon databases and using wizards & API’s.● High performance – capable of providing billions of predictions for the applications. 

b.  Amazon Data Pipeline 

It is a web service, integrates data from multiple AWS services and provides a single location for analysing it. This way it is easier for users to work on data.

Salesforce DMP[10] is the renowned data management platform which captures, unify and activate signature data across various devices and sources like social, videos, blogs in real time. Therefore, it interacts with billions of data monthly to provide best customer experience. Due to this, the company faced the challenge faced of quickly & efficiently processing large amount of data. Salesforce DMP moved to AWS for data processing which involves real time, on-demand, batch mode, on-demand analysis of petabytes of data. It uses AWS Data Pipeline to move data between different AWS compute and storage services, to schedule external jobs. Hence AWS helped company in delivering highly flexible data-processing service to a worldwide customer base. The company is able to achieve 100% processing speed for its iterative jobs, making its systems faster and more efficient.

Benefits:
● Simple -drag & drop of templates to make visual pipeline on console for various tasks like logfile processing, archiving data, etc● Reliable – highly fault tolerant, it automatically retries the activity in case of failure● Flexible – offers features like scheduling, tracking, error handling, executing SQL queries directly against DB, etc 

c.  Amazon Elastic Map Reduce

Amazon EMR provides elastic infrastructure framework of dynamically scalable Amazon EC2 along with Amazon S3 to provide framework like frameworks such as Apache Hadoop, Apache Spark, and Presto. It helps in data & financial analysis, data warehousing, web indexing, etc.

Benefits: –

● Easy to use – easy to use, set up, configure, etc.● Reliable – automatically retries failed tasks and replaces instances which are low performing ● Elastic – increase or decrease number of instances at any moment 

As per Shazam[11] case study in AWS, the company connects people around the world to the music, TV shows and brands they love. With this app people identify a song, a TV program, or ad and get relevant information about it on a single click. The company faced spike in demand on service during their Super Bowl advertising campaign. Soon they switched to cloud technologies and implemented new solution using AWS EC2, EBL, DynamoDB, etc. The company is using Amazon EMR for large-scale data analysis which require more than 1 million writes/sec. Implementing AWS solution enabled company to handle high traffic online in a short period.

AWS provide secure & efficient solutions for companies to grow faster in a cost-effective manner by providing a wide set of global compute, storage, database, analytics, application, IoT, etc. services.Companies have successfully integrated their remote network or Amazon VPC network using AWS resources. With AWS, companies no longer worry about underlying infrastructure or its location but focus on developing their applications.

Amazon Web Services. (2018). AWS Named as a Leader in The Forrester Wave: Database-as-a-Service Q2 2017 Available at: https://aws.amazon.com/blogs/database/aws-named-as-a-leader-in-the-forrester-wave-database-as-a-service-q2-2017/

Armbrust, M. and Fox, A. (2009). Above the Clouds: A Berkeley View of Cloud Computing.

Docs.aws.amazon.com. (2018). “AWS Documentation” Available at: https://docs.aws.amazon.com/index.html#lang/en_us

Gartner.com. (2018). Gartner Says Worldwide IaaS Public Cloud Services Market Grew 29.5 Percent in 2017. [online] Available at: https://www.gartner.com/newsroom/id/3884500

G2techgroup.com (2018). Why AWS? Available at: https://www.g2techgroup.com/why-aws/

NASA/JPL’s Mars Curiosity Mission Case Study (2018)– Amazon Web Services (AWS). Available at: https://aws.amazon.com/solutions/case-studies/nasa-jpl-curiosity/

Robitaille, V. (2017).” Understanding AWS Elastic Load Balancing” Available at: https://medium.com/nubego/understanding-aws-elastic-load-balancing-62bf3d2cec5f

Salesforce UK Blog. (2018). “Why Move to The Cloud? 10 Benefits of Cloud Computing” Available at: https://www.salesforce.com/uk/blog/2015/11/why-move-to-the-cloud-10-benefits-of-cloud-computing.html

www.tutorialspoint.com.(2018) “Amazon Web Services Tutorial” Available at: https://www.tutorialspoint.com/amazon_web_services/index.htm

[1] Amazon Web Services, Inc. (2018). What is AWS? – Amazon Web Services. [online] Available at: https://aws.amazon.com/what-is-aws/

 

[2] Airbnb Case Study (2018) – Amazon Web Services (AWS). Available at: https://aws.amazon.com/solutions/case-studies/airbnb/

[3] Wipro Case Study (2018) – Amazon Web Services (AWS) Available at: https://aws.amazon.com/solutions/case-studies/wipro/

[4] Serverless Case Study (2018) — Netflix – DZone Cloud Available at: https://dzone.com/articles/serverless-case-study-netflix   &  Netflix & AWS Lambda Case Study(2018) – Amazon Web Services (AWS) Available at: https://aws.amazon.com/solutions/case-studies/netflix-and-aws-lambda/

[5] Amazon Aurora Customer Testimonials (2018) – Amazon Web Services (AWS) Available at: https://aws.amazon.com/rds/aurora/customers/

[6] Duolingo Case Study-DynamoDB (2018)-Amazon Web Services (AWS) Available at: https://aws.amazon.com/solutions/case-studies/duolingo-case-study-dynamodb/

[7] AWS Case Study: PlaceIQ. (2018)Available at: https://aws.amazon.com/solutions/case-studies/placeiq/

[8] Zimplistic Case Study (2018) – Amazon Web Services (AWS) Available at: https://aws.amazon.com/solutions/case-studies/zimplistic/

 

[9] AWS Case Study: BuildFax & Amazon Machine Learning (2018) Available at: https://aws.amazon.com/solutions/case-studies/buildfax-and-amazon-machine-learning/

[10] Salesforce DMP Case Study (2018)-Amazon Web Services (AWS) Available at: https://aws.amazon.com/partners/success/salesforce-case-study/

[11] AWS Case Study: Shazam(2018) Available at: https://aws.amazon.com/solutions/case-studies/shazam/
 

Amazon’s Business Model: A Case Study

Discussion of Amazon’s business model, and the impact of information technology for the internal organisation of work.
What is their business model?
Many academics believe that Amazon’s outstanding success as an Internet retailer compared with many of its rivals has been due largely to its ideal business model and swift response to the changing market since its inception. (Global Market Information Database, 2003) To begin with, Amazon chose the perfect product lines for e-commerce, with products that consumers did not need to handle in person before making a purchase: initially books, but then spreading to DVDs, music and other media. Furthermore, consumers in the book and music categories tend to desire information when they shop online, which Amazon was able to provide on its sites through reviews and recommendations. Amazon consumers appeared willing to pay a little extra for this convenience, although the recent competitiveness of the market has forced the company to cut prices or use other promotional techniques, and shift the focus of its business model from pure quality driven back towards price driven.

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Amazon then turned to diversification, and extending its product offer in order to widen its customer base and improve margins, with the result being that the company has focused strongly on building up its product portfolio to offer customers more choice. In 2001, Amazon increased its range of electronics and tripled its kitchen selection, as well as launching computer and magazine subscriptions stores, and set up strategic partnerships with retailers such as Target and Circuit City. In November 2002 Amazon.com announced the launch of a new online apparel store with items from retailers including The Gap, Old Navy, Land’s End, Nordstrom’s, Cole Hahn, Osh Kosh, Spiegel, Eddie Bauer, and Foot Locker, amongst others. This diverse business model has enabled Amazon to grow both its market capitalisation and profitability, and become largely accepted as the world’s leading online retailer (Global Market Information Database, 2003)
The company also concentrates on improving convenience with new features, such as the recently launched ‘Instant Order Update’, which warns customers if they are about to buy the same item twice. Marketing itself as offering Earth’s Biggest Selection, the company aims to be the world’s “most customer-centric company”, operating through its three basic businesses: Online Retail; Marketplace and Other; and Third-party Sellers. Amazon also recently began to target the institutional market as well as consumers expanding its business model in order to drive a new source of revenue: renting out its site-building services to other companies. It owes much of its relative financial well-being, compared with other pure Internet retailers to the site-building and hosting services it has sold to clients such as Borders and Toys “R” Us. (Global Market Information Database, 2003)
Indeed, a recent article by Sutton (2005) focuses on Sears Canada Inc., which has recently stated that it will turn over the technology component of its online retail presence to Amazon to capitalize on Amazon’s years of expertise in customer-facing Web sites. “Sears.ca will remain very much a Sears brand,” according to spokesperson Vincent Power, (Sutton, 2005) with little to indicate Amazon’s involvement from a customer’s perspective, and Sears will continue to host the site, using the same internal fulfilment house that handles customer orders from the site and from the Sears catalogues. Amazon Services Inc., a subsidiary of Amazon.com Inc., will handle the arrangement which is only the latest in a series that Amazon has struck with other retailers recently. The idea of retailers, both huge and small, outsourcing their Web sites has gathered momentum in recent years, said retail analyst Jim Okamura with Chicago-based J.C. Williams Group (Sutton, 2005), and Amazon’s business model is now aligning itself to take full advantage of this fact.
Strategic alliances are another integral part of Amazon’s business model, and the company has entered into a number of agreements to expand its range of products and services by allowing selected strategic partners to sell products and services under co-branded sections on the Amazon.com website. These alliances have generally consisted of Amazon making, or having the future right to make, a minority investment in the companies, and the entry into commercial agreements, which vary in scope, from customer advertising activities and links, to recently announced deals involving the sale of products and services on co-branded sections of the Amazon.com website. These alliances have developed from the successful alliances the company forged in 2001, with such companies as America Online and Target in the US, and Virgin Wines in the UK. Amazon also expanded its product offering under its Toysrus.com strategic alliance to include Babiesrus.com and Imaginarium.com co-branded stores at www.amazon.com. In addition, the company entered into strategic alliances with Expedia, Hotwire and National Leisure Group to create its travel store, further fulfilling its diversification aims.
Amazon’s marketing strategy is one of the most typical parts of its business model, being focused on strengthening and broadening the Amazon brand name, increasing customer traffic to its websites, building customer loyalty, encouraging repeat purchases and developing incremental product and service revenue opportunities. However, the unique part of this section of its business is that in order to accomplish this, the company employs tactics such as delivering personalised pages and services and using a variety of other media, business development activities and promotional methods. Amazon also relies on public relations activities, as well as online and traditional advertising, including radio, television and print media, and direct marketing, however one of the primary ways the company directs customers to its websites is through its “Associates Program”. This enables associated websites to make products available to their customers with fulfilment performed by Amazon, and is remarkably successful: by 2001, more than 700,000 websites had enrolled in the Associates Program. (Global Market Information Database, 2003)
What many consider to be the defining characteristic of Amazon’s business model is that the firm has no physical retailing activities, operating only via the Internet. However, its virtual operation is very much underpinned by administrative and service facilities, and in 2001, these consisted of US fulfilment facilities in New Castle, Delaware; Coffeyville, Kansas; Campbellsville and Lexington, Kentucky; Fernley, Nevada; and Grand Forks, North Dakota; as well as a seasonal fulfilment centre, used as necessary, in Seattle, Washington. The company also leases and operates three European fulfilment centres located in the UK, France and Germany and, in Japan, the courier company Nippon Express provides fulfilment services for orders from www.amazon.co.jp. These fulfilment centres comprise in total around four million sq ft of warehouse space, and in addition, Amazon leases four off-site facilities that fluctuate from 340,000 to 710,000 sq ft of space, which support the storage and fulfilment functions of the US centres. (Global Market Information Database, 2003)
What are the technologies used by the organisation in pursuit of competitive advantage?
In Hamid’s (2005) article, he focuses strongly on the fact that Amazon offers many interesting variations on the strategic applications of Internet technology, in order to enhance customer relationship and acquire customer loyalty. Obviously, Amazon’s offerings of personalised services, confirmation of orders in real time and other value added activities substantiated the ability of the Internet as a competitive tool. As the number of internet users is growing rapidly around the world, retailers are under great pressure to take advantage of this huge online market potential. However the challenge is whether online retailers can match up with other, “bricks and mortar” competitors worldwide in terms of services rendered on the Internet. Hamid investigated the level of Internet technology applied by web sites in view of global electronic marketplace competition, finding that many Internet retailers are still lagging behind in fully utilizing the strategic potential of the Internet particularly in enhancing customer relations. However, Amazon is already way ahead of this, using some of the technologies described above, and plans to cement its lead further in the next five to ten years and, in doing so, revolutionise the book business yet again.
Curtis (2005) analyse Amazon’s recent acquisitions of on-demand book printer ‘BookSurge’ and e-book company ‘MobiPocket’, claiming that they may signal a coming transformation of the publishing business, one that includes an end to the industry’s biggest problem: that of returns. Since practical ‘print on demand’ (POD) technology became available in 1998, it offered retailers the vision of a book business driven by demand-and-supply, rather than the current consignment model, and Amazon is ideally placed to turn that vision into reality (Curtis, 2005) Given that the retailer owns or leases well over four million square feet of warehouse space, no small portion of which is devoted to books, and employs 9,000 people to process orders, it would benefit immensely if it could forward orders to a printer to drop-ship books directly to customers.
Not only would this benefit Amazon itself, but also potentially the publishers, helping Amazon develop strong relationships with yet another stakeholder group. One strategy might be for Amazon to print pre-sold books in its own plant which, aside from shifting printing and shipping costs from publishers to the retailer, would also sharply reduce the guesswork for publishers setting print runs. Given current economies of scale for large print runs of big books, it’s likely publishers would, at least for the foreseeable future, continue to print books the traditional way for brick-and-mortar accounts. However, Curtis (2005) claims that even a mix of POD and traditional printing makes more sense than the current reasoning that you can make more money by printing a million copies and selling half of them than you can by printing half a million and selling all of them.
Though POD manufacturing costs are currently far higher than those of traditional long print runs, longer POD print runs, and lower unit costs, will become more common if the number of pre orders on the site continues to rise, and as the technology continues to improve, especially given Amazon’s access to detailed customer data which it can use to predict future retail trends. Equally, Amazon’s acquisition of the e-book retailer, ‘MobiPocket’, enables the company to contemplate developing virtual publishing in its purest form: eliminating hard copies and delivering virtual books electronically to customers at a fraction of the current cost. As Amazon masters these technologies and delivery systems in the coming years, perhaps even becoming a publisher in its own right, it will be harder and harder for traditional publishers to support the outdated consignment model, and potentially giving Amazon its highest ever level of competitive advantage. Indeed, trade publishers may find themselves shifting to a system in which most books are pre-sold, regardless of the channel, further increasing Amazon’s advantage over the traditional stores. Curtis, R. (2005)
What are the implications of this technology on the internal organisation of work?
One of the key implications of the importance of technology to Amazon is that the company has to maintain its edge in technology: an edge that is more critical than ever as Amazon increasingly squares off against sophisticated e-commerce survivors like eBay, whilst controlling the potentially massive costs of said technology. Just two and a half years ago, Amazon spent 11 cents on tech for every $1 in sales, but now the company spends only about 6 cents. All told, Amazon’s tech spending has fallen 25 percent from its September 2000 peak, even as the company added nine new categories to its retail lineup and signed on dozens of new corporate partners. However, despite the need to slash unnecessary costs, at other times, it’s much better to invest your way to efficiency and, as Amazon’s head of technological development claims: “You can’t be cheap for the wrong reasons.” (Thomas, 2003)
As such, Amazon’s internal staff have embraced open-source coding, replacing Sun servers with Linux boxes from Hewlett-Packard, and necessitating a whole new organisational structure for the technological development staff. For every $1 spent on the new hardware, the company saved $10 in license fees, maintenance, and expected hardware upgrades, but also has to learn and adapt to the new processes and systems. The company has also been willing to spend to save, maintaining its own warehouse-management software, which has to be built and maintained by internal staff, even though ready-made alternatives like Logility might cost as little as $375,000. However, with its own software, Amazon can tweak inventory algorithms whenever it wants so that, for example, a book isn’t shipped to New York from a Nevada warehouse when it could be sent faster and cheaper from Delaware, and managers can have greater control over their own warehouse staff. (Thomas, 2003)
Equally, although Amazon’s partners are primarily intended to generate revenue, they are also used to help control internal costs: the company has recently began to invest in Web services and tools that make it easy for partners to hook into applications Amazon had developed for its own use. Now retailers like Nordstrom and Gap can feed their inventory into Amazon’s new apparel store without a lot of custom coding, and freelance programmers can build their own online stores using Amazon’s payment, fulfilment, and customer services, meaning that Amazon’s internal staff only need track these stores and ensure they are using the services correctly, rather than have to handle all the marketing and coding themselves. For example, a Romanian coder created www.simplest-shop.com, which uses Amazon’s Web services tools to extract product data from Amazon and then fashions side by side comparison tables, which is a feature not available on Amazon.com, essentially doing Amazon’s marketing and retailing for it. (Thomas, 2003)
Amazon’s recent shift towards cutting costs has also has an effect on its internal organisation of work: in 2001, Amazon embarked on a restructuring plan which would lead to a reduction in its personnel numbers by some 1,300, or 15% of its workforce. This also involved: the consolidation of Amazon’s corporate office locations in Seattle; the closure of its fulfilment centre in McDonough, Georgia; the operation of its Seattle fulfilment centre on a seasonal basis; the closure of its customer service centres in Seattle, Washington and the Netherlands; and the migration of a large portion of its technology infrastructure to a new hardware and software platform. The company estimated that the restructuring would result in costs during the first half of 2001 exceeding US$150 million relating primarily to severance, fixed asset impairments, continuing lease obligations and other exit costs related to the restructuring. The restructuring has also lead to fundamental changes in the roles of its staff, and the organisational structures within which they work, with many staff taking over greater responsibilities and a greater scope of work. (Global Market Information Database, 2003)
References:

Curtis, R. (2005) Gone Today, Gone Tomorrow? Publishers Weekly; Vol. 252, Issue 30, p. 74.
Global Market Information Database (2003) Amazon.Com, Inc. Euromonitor International.
Hamid, N. R. A. (2005) E-CRM: Are we there yet? Journal of American Academy of Business, Cambridge; Vol. 6, Issue 1, p. 51.
Sutton, N. (2005) Sears Canada turns over Web management to Amazon. Computing Canada; Vol. 31, Issue 7, p. 11.
Thomas, O. (2003) Amazon’s Tightwad of Tech. Business 2.0; Vol. 4, Issue 1, p. 104.

 

Amazon’s Expansion into China: Opportunities and Challenges

This report highlights Amazon’s opportunities and challenges in China. With the worlds fastest growing and changing e-commerce market, Amazon China faces the e-commerce giant Alibaba and struggles to gain adequate market share. Leading the world’s online retail, however, Amazon exposes a remarkably low presence in the country. Since 2004, the company has failed to adapt to Chinese models and infrastructures, going through different strategic routes has not alleviated the company’s growth. Amazon has become an exemplar for many B2C, B2B and C2C foreign companies who want to enter the Chinese e-commerce market, the distribution channel that leads to billions of online shoppers is attracting many foreign brands to both launch their e-commerce cite or open up a digital shop in one of Alibaba’s e-commerce platforms. Amazon has been in China for over fifteen years and no sign of growth has occurred yet they chose to endure in the Chinese market. Findings show that the company’s determination to continue to dwell in China is based upon the long run, within the years Amazon sought to position itself as a premium platform to meet Chinese demands of oversees products.

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Introduction
E-commerce in China
Nowadays,
the difference between e-business and e-commerce drastically matters for
companies. The “e” that represents the
function of electronic network technology
has evolved to new business processes and practices. (Bartels 2000) In a
large bubble, e-commerce highlights the reach of customers across suppliers,
marketing, customer service, distribution through different business models (B2B,
B2C, C2C, B2G, C2B, P2P, m-commerce). Whilst e-business comprises of e-commerce
however it is more associated with the internal developments such as
recruitment, finance, customer correlation management, information management,
supply chain managements etc.
“E-commerce is in fact not just a commercial tool in China. It has become a model for economic development.” (Marco Gervasi 2016) East Commerce, a journey through China e-commerce and the internet of things by Marco Gervasi gives us indications on how China will continue to form and ultimately conquer the e-world in the following years. China’s underdeveloped infrastructures and uncivilized marketplaces in the past decade urged the country to implement America’s embryonic e-commerce and e-business models. However, the American model was naturally designed to fit in a developed market rather than a developing one, therefore China was unqualified to adopt such model. (Gervasi 2016)
Alibaba,
the first digital platform that successfully used a model adjusted to Chinese
conditions and specifications. Alibaba’s
success arose from the idea of building a platform similar to EBay’s by linking shoppers and vendors while
leaving the trading costs to them. Tao
Bao, a subset of Alibaba, with
its shrewd alteration from an Amazon-like model to an EBay-like model triggered
Chinese e-commerce to launch regardless of its unfledged and underdeveloped
infrastructure. (Gervasi 2016)   
M-commerce or mobile commerce plays a major role in Chinese e-commerce, due to the country’s rapid spread of smart devices, the Chinese online world is increasing in a revolutionary manner. With the influence of m-commerce, Chinese e-commerce has unintentionally created online shopping into a social activity. (Gervasi 2016) E-commerce and social activities are now merging, as a matter of fact, the number of mobile users has surpassed the number of internet users in 2008. (Chong, Chan and Ooi 2011) Chinese participants in online social activities have shown that the more people purchase online products/services the more it revolves around a social experience.  Posting pictures on their purchased products, ratings and writing reviews on the products and so on has created a radical e-commerce model in China. (Gervasi 2016) In a nutshell, social influence has shown to be a key principle of Chinese consumer decisions to embrace the m-commerce model. (Chong et al. 2011) 
Amazon
Amazon,
known today as the world’s leader in online retail, founded by Jeff Bezos in 1994, starting as a
bookseller, the founder was never pleased of it being only a book distributor. The Everything Store (2013) by Brad Stone terms the founder’ s vision as
quarrelsome; Bezos wanted Amazon to offer a limitless variety of
goods with the best convenience at the lowest prices. (Stone 2013) Amazon’s success in the United States
only led the company to expand and generate international revenue, with its
promising numbers in the US, the company believed that expanding globally would
only overpower the world of e-commerce.
Figure 1: Amazon worldwide online marketplaces. Source: Company (2015)
After expanding to
Europe, Amazon was hungry for more
expansion. An entry to India’s market utterly grasped the company’s attention.
Entry to India’s world of e-commerce comprised of a young population (65% under
the age of 35), increasing numbers of mobile users (80%) and growing levels of
disposable income (individual and household). However, most of the population
lives in countryside regions under an underdeveloped infrastructure and only
35% of the population are internet users. (Govindarajan and Warren 2016) India’s
e-commerce model could be a suitable comparative analytical tool to China’s
e-commerce model as they both characterize of underdeveloped infrastructures. Amazon
entered the Indian e-commerce market only after it witnessed an insignificant
performance in China, Amazon’s devastation in China taught the company how to
adapt its model and platform within underdeveloped infrastructures, such as
customizing products in the local markets. With that said, Amazon India owns a
larger portion of the e-commerce market share in India, taking over the
competitors such as Flipchart and Snapdeal. (Vishrut Shah 2016)
Amazon has clearly
shown an exceptionally low presence in China due to its primary competitor
Alibaba, but why has Amazon chose to remain in China, heedlessly?  An analysis of the industry and the market,
the current business models/technologies used and the strategies implemented to
survive the ongoing struggle will be highlighted to demonstrate the company’s
decision and determination to continue to dwell in China.  
Amazon China Case Analysis
Amazon.cn
Amazon is not the only western company that
struggled and continues to battle in China’s e-commerce market. Other companies
like Yahoo and and Google have also failed at gaining
adequate market share. Amazon entered China’s B2C e-commerce market in 2004 by buying
Joyo.com, however, the company rebranded
it as Amazon.cn in 2011. It observed
an immense decrease in sales from 2004 – 2016. (Wang and Ren 2012) Amazon
currently owns 0.8% of the e-commerce websites market share, it also brought in
Amazon Prime, hoping to bump up sales
in China, however it remained far behind Chinese e-commerce websites. (Jeff
Dunn 2017)
Figure 2: E-commerce websites in China market share (2016). Source: iResearch China, US Department of Commerce (BusinessInsider 2017)
The company
introduced Amazon Prime to China in 2016
but appeared to still not go any further, that is because Alibaba’s domination of the e-commerce market was controlled by Tao Bao where cheap brands were
available and T-Mall where big western
brands would launch their digital shops. (Jason Del Rey 2016)Amazon profoundly keeps investing in
China, Dawson (2015) mentioned that
given the strong competition in China and regulations, its very questionable
for Amazon.cn to witness a lasting
success. On the other hand, Amazon China’s president Doug Gurr (2015) adds that cross-border
e-commerce is the company’s strategy in China. In 2015, the cross-border buying
power by Chinese consumers has revealed growth, sales records from Amazon
show that the primary users of Amazon China are people with high disposable
incomes, educated, and young. (Meng Jing 2015) In my point of view, this can
reveal a matter of trust, Amazon’s
general image around the world is known to be very positive and constructive,
it’s main competitors in China such as Tao
Bao, T-mall and JD sometimes offer unoriginal and
no-brand named goods, but Amazon China seems to be positioning itself as a
premium platform offering only genuine and western products. In 2015, the
president of Amazon China stated that they will continue to tremendously invest
in the following year of 2016 to make shipping cheaper for customers when
purchasing items from abroad, and this strategy will eat up more market share.
(Jing 2015) By that time, Amazon China was acquiring 1.1% of the market share
(see Figure 3), as of now (2017) the strategy does not seem to be working as they
own 0.8% of the share.  The e-commerce
market in China is colossal, so how small is a share of 0.8% in such market?
Figure 3: E-commerce market share in China (2015). Source: iResearch (Quartz 2015)
The E-Revolution in China
Over the past 10 years,
China has become a cyber-market, e-commerce has been emerging and third-party
payment systems have made it comfortable for Chinese consumers to purchase
items online. (Cristiano Rizzi 2013) Distribution channels in China are
becoming exclusively attractive for foreign companies because the population is
thriving and Chinese people have shown a preference to consume on online
platforms. Rizzi (2013) in his book E-commerce Law in China suggests that
foreign companies that want to expand to China or enter the Chinese market must
consider adopting traditional methods
of approach and eventually launch an online presence. (Rizzi 2013) Porter Erisman (2012) narrated in his
documentary “Crocodile in the Yangtze”, “Imposing
a Western model in China doesn’t work.”  EBay’s failure
in China can be one of the cases where a Western company missed its chance to
recognize and adapt to Chinese e-commerce models.
Big data gradually drives e-commerce in China, more companies in China use data and analysis for future outlooks and to understand consumer behaviors. (Helen H. Wang 2016) Tencent, Alibaba, and Baidu maintain the most treasured data sources. Not only it can help them manage and segment their own target markets but also help other multinational companies in China to do so. (Wang 2016)
The e-commerce market in China is growing at an incredible rate, doubling in numbers whilst economic performance advances. Due to progressive e-commerce, it has brought more than 700 million people to join the middle-class. China is estimated to overtake the US in becoming the largest retail market in the world with a population of 1.3 billion people and a blossoming number of smartphone and internet users. (Tsendyam Enkhchimeg 2016)
Amazon China’s 0.8% current market share may seem very small but lets not forget that it’s a piece of the world’s largest and fastest growing e-commerce market. According to the National Bureau of Statistics in China, 2016, online retail sales reached around $752B. (Frank Tong 2016) However, as China’s e-world continues to grow, Amazon China has not shown to grow in terms of market share, instead it has exposed a loss.      
SWOT Analysis and Michael Porter’s Five Forces
Strengths: Amazon
is generally a very profitable company, known as the largest online retailer in
the world. Information Technology and
Customer Relationship Management also
abbreviated as CRM maintain Amazon China’s strategies in business. As mentioned
earlier, the company aims at understanding its Chinese customers by recording
data on consumer behaviors and preferences, it empowers the company to offer
certain needs at the right time of year by tracking purchases and clicks (visited items), a concept also
known as “re-targeting.”  As the above are the overall strategies of
e-business companies, Amazon China’s current situation is urging them to absorb
as much information as possible to deliver more needs to its current customers
and understand the potential ones. Financial stability and market orientation can
also be additional strengths; the mother company grossed more than $90B just in
sales last year (company 2017), this success is driven from a low-cost structure and wide range of
products and items. Third party sellers,
(a model for sellers within the platform) also push new customers to Amazon
China’s website. All of Amazon’s marketplaces upkeep each other by creating
benefits, that is one of the reasons it is continuing to survive and hasn’t yet
latched out of China’s e-commerce market. 
Another
strength acknowledged is the brand image of the company overall, it has long
been a trusted and a dependable platform, Amazon China uses this advantage to
offer Chinese consumers quality goods from abroad, a resilient strategy used by
Amazon.cn called cross-border e-commerce.  
Weaknesses: Amazon
China has been adding new categories in their selection, Chinese produces and
items, may be useful in diversifying the customer base, however, it risks
damaging the only positive brand advantage they currently have, cross-border buying power. Moreover, the
delivery model has not been clear for both impending Chinese customers and
current customers, Amazon China has changed from free-shipping to charging
customers for shipping because it projected financial losses. A further
weakness is the infrastructure and model used are not genuinely suitable for
the Chinese e-commerce market though over the years it has slowly started
adapting to it. As discussed earlier, the use of smartphones is much more
common than the internet, the company has not yet set up an Amazon China app
where Chinese people can purchase items on their phones, it also lacks the
social ecosystem where buyers and third party members can communicate.    
Opportunities: E-commerce
opportunities in China are vast, not only for Amazon but for many other foreign
companies as well. As the e-commerce market continues to develop, shipping
costs are decreasing, technology is advancing and the economy is thriving while
Chinese household incomes are mounting. At some point, China may observe an
entire developed economy and country, whereas Amazon’s stable infrastructures
built for developed countries can come in handy. Foreign brands in China
represent prestige and premium quality, they also have shown quite a demand, the
company is opening its doors to third party sellers from abroad who can bring
these needs to the fullest.   
Threats: Chinese demand and
interest in foreign goods, typically US branded or EU branded has caught the
attention of many American and European companies, an e-commerce movement that
seems will cause more competition for Amazon China. For instance, the big
American retail brands such as Macy’s announced
that it will launch its e-commerce website in China by the end of 2018. Macy’s already has a good reputation and
image in China due to its digital shop on T-mall, this could be a major threat
for Amazon. Joint ventures and mergers in the market may also be of great
threat to China’s Amazon.
Porter’s Five Forces
Figure 4: Michael E. Porter’s Five Forces – Amazon China
 PESTLE Analysis
Political/Legal
influences
affecting and supporting Amazon’s e-commerce business in China:
China’s political
and legal stability is unclear: (opportunity and threat)
Amazon has faced
and continues to face many challenges within the Chinese e-commerce landscape. It
is a foreign company facing Chinese born competitors such as Alibaba, the
government has shown to ease regulations by supporting the Chinese e-commerce
companies. It continues to threaten Amazon because it may cause more Chinese
e-commerce websites to launch. In addition, the Chinese government is
restricting new regulations on cross-border e-commerce activities to secure
trade safety and this only limits third-party sellers to join Amazon’s Chinese
platform. Third-party sellers who sell foreign items are also objected to go
through payments and electronic contracts. On the other hand, the government
has shown great support for e-commerce websites in China, both foreign and
domestic, by cultivating business conditions in enhancing cyber security, the
buyer, seller and logistic services can rely on the e-commerce platforms.
Economic Factors:
China’s economy
has been enjoying e-commerce advantages. As it is still a developing economy,
disposable income is on the rise, this opportunity for Amazon is valued
especially for the long-run as it will surge the company’s revenue. However, an
economic recession in China is very likely, a threat that would unravel
Amazon’s efforts in trying to penetrate the world’s most developing e-commerce
market.
Social and sociocultural
Influences:
The social factors
are all opportunities the company must take advantage of.
China is
witnessing a culture of online consumption, this degree of consumerism on all
of the county’s e-commerce platforms must drive Amazon to create social
activities with the program to enhance the social experience. As social media
continues to be a dominant distribution channel, consumers also use these
medias to make buying decisions on platforms such as WeChat.  
Figure 5: WeChat online shopping doubles within a year (McKinsey 2016). Source: McKinsey iConcumer China 2016 Survey
Technological Factors:
Technological
advancements within China have directly hit Amazon, new technologies are rapidly
altering and developing which pressures Amazon to progress its technological
systems. However, it is also viewed as an opportunity by the company because it
adjusts the business accordingly. Amazon’s investments on IT may increase a competitive advantage and defend itself from new entering
competitors in the same e-commerce market. The opportunity to further enhance performance
by increasing the efficiency of information
technology must be considered by China’s Amazon in order to exploit
productivity and decrease operational costs. Furthermore, stressing continuous
developments in technologies within the Chinese e-commerce market may lead the
company to stay a step ahead of competition or assist it by not staying behind.
Environmental
(ecological)
Elements:
Environmental
awareness is beginning to be become more popular in China. Ecological threats
such as global warming is driving companies to launch environmental programs, Alibaba for instance is continuously promoting
and raising awareness on environmental protection of the country. Due to the
growing interest in environmental programs, Amazon has sought the opportunity
to reduce the amount of paper-made books in the selection and offer e-book
alternatives both on Kindle and desktop. 
 Business Models and Technologies
China’s e-commerce business models
Business-to-Business
(B2B)
The
B2B model is designed for businesses to sell their products or services to
other businesses within an online platform.
The B2B segment
basically launched the development of e-commerce in China. Such model was first
aimed at enhancing the trading channel between Chinese suppliers and US/EU
buyers. Nevertheless, now it is used by millions of buyers and suppliers from
around the world. China is the worlds leader in the B2B e-commerce sector, due
to Alibaba’s dominance.  
Figure 6: China B2B E-commerce market share (2012 & 13). Source: iResearch (CBBC Guide to E-commerce in China 2012)
Business-to-Consumer
(B2C)
The
B2C model generally applies to when a transaction occurs between the company
(seller) and the consumer.
China’s B2C e-commerce market is conquered by the domestic online retail companies such as T-mall. The penetration of online shopping and internet usage deliver a strong basis for the growth of the online retail industry in China.  
Figure 7: B2C E-commerce Market Share China (2013). Source: iResearch (CBBC Guide to E-commerce in China 2012)
Consumer-to-Consumer
(C2C)
This
business model enables customers to trade between each other.  
The C2C e-commerce
model dominated the online retail Chinese market, Alibaba’s e-store Tao Bao is the primary participant
controlling around 95% of the entire C2C sector. (CBBC 2012)
Figure 8: C2C China Market Share 2011. Source: iResearch 2011
Summary:
All these models
represent effective channels in which a company can associate with customers or
clients at low costs both in China and abroad. However, a foreign company must
understand and evaluate the Chinese e-commerce landscape to the maximum before
it enters the market. For example, Amazon did not fully recognize the obstacles
and opportunities before entering which caused it to perform poorly. EBay’s presence in China was a failure
because its C2C business model did not suit the market and did not adapt to the
environment, therefore missed the opportunity to control the worlds largest C2C
e-commerce market. If EBay and Amazon had analyzed the Chinese
environment and demographics more precisely before entering, they would
possibly be leading the Chinese e-commerce market. The figure below
demonstrates the Chinese E-commerce market growth comparison of B2C and C2C.
Figure 9: Chinese E-commerce market growth B2C and C2C (2007 – 2013). Source: Bain and Company 2012 (CBBC Guide to E-commerce in China 2012)
Amazon in China operates
within a B2C business model, it sells products directly to consumers on the
site and allows third-party sellers to join the platform at no charge. Amazon
does not help the third-part sellers succeed, instead the company discovers the
most sold items by the sellers and then places them at lower prices, however,
it also lets sellers sell the same products as Amazon at lower prices. (Wang
2015) 
Future Outlooks
China
has been changing the future of e-commerce. Online spending has been rapidly
increasing since 2004, the convenience of online shopping continues to expand
around rural areas and small cities which helps e-commerce companies reach new
customers.  Shopping on mobiles is also
increasing at an incredible rate, the convenience of shopping at the tip of
your fingers, looking at reviewed items, rating products and so on is only
seeming to become more and more popular in China. The top e-commerce giants of
China are dominating the m-commerce market by continuing to improve their apps
and customer services.
It
is reasonably predictable that if China’s Amazon does not partake in the
m-commerce market it will remain far behind and its market share will continue
to drop. It is clear that Chinese people prefer to shop more on mobile rather
than the internet.      
Moreover,
Amazon.cn is simply absent to Chinese people, issues such as adapting to the
Chinese infrastructures and lack of mobile presence are creating barriers to
obtaining more market share and profit rather than being a strategy of
differentiation. Being cost effective and selling cheaper items is not a cost
leadership strategy because the competition already masters at that. Amazon.cn
is left with one leading strategy to face, to only focus on branded
imported goods.
Recommendations
Amazon
may consider the following strategies to win in China’s e-commerce market.
The
first strategy Amazon China can act
upon is building a mobile app that can function as a corresponding tool to the
website. An easy-use app where the the shopping experience is enjoyable and
payment methods are easy and secure. Enhance customer service on the app
through a feedback system, a network where the company and customer can
communicate. 
The second strategy is social networking, Amazon must merge with Weibo and Wechat or create its own in-app social system where consumers can react on products by reviewing the quality of the item, delivery method and quality of customer service.
A
third strategy would be advancing
data assembling techniques, it will not only help the company gather enough
information on their customers but it will also keep the company updated about
market trends and developments. Furthermore, big data collection will customize
the experience for the targeted consumers.  
 
The
fourth strategy Amazon can stress on
is cross-border e-commerce, it is the most powerful tool it currently has
against its competitors in China. A lot of Chinese people admire western
products, however, Amazon’s competitors such as Tao-Bao and T-Mall have those
products at similar costs but the quality of the good is unreliable. Therefore,
Amazon China can offer the western premium goods at lower costs by opening
warehouses in tax free regions around China.
Amazon
should customize its model and infrastructure based on Chinese sociocultural
environment. Marketing strategies such as participating in Singles-Day sales, Chinese new year promotions and so on will bring
the company a step closer to compete with the e-commerce giants of China.
However, Amazon must stop investing and focusing too much on China, the simple
strategies above could benefit the company in numerous aspects within the
e-commerce market. Like Amazon India, the entire company must continue to
expand to developing countries before Alibaba dominates them.  
Conclusions
To
sum up, Amazon’s entry to China led the company to build new infrastructure and
model for developing countries, its experience has helped it understand how to
adapt a model in a country where change and growth are boundless. Amazon
entered China at the wrong time in the wrong way, the company underestimated the
obstacles and opportunities. The company failed to balance between
customization and standardization that could shape a new business model. Amazon
is still struggling in China left with very few strategies to consider, Amazon
has even opened up its own store on T-Mall in-order to increase more
publicity. 
Alibaba
has dominated great power of the e-commerce industry, this e-revolution in
China has served the economy in so many ways, creating jobs and an income for
people in rural areas as well. A country of 1.3 billion people where 90% are
online shoppers and a growing middle class drives Amazon China’s ambition to
continue to remain in China. Chinese people have shown a demand in oversees
premium products especially from the US and Europe, although a rapidly growing
market and yet a decreasing market share for Amazon, the company believes that
the long run will have so much to offer. 
The company must implement new strategies and base itself according to
Chinese culture, gain a mobile presence, engage in social networking,
understand Chinese online consumers to the maximum, and most importantly remain
as a premium online service that offers only items and products from abroad.
References:
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[Accessed 28 Apr. 2017].Horwitz, J. (2015). Amazon.com
is seeing a surge in buyers from China. [online] Quartz. Available at:
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[Accessed 20 Apr. 2017].Jing, M. (2015). Cite a Website –
Cite This For Me. [online] Chinadaily.com.cn. Available at:
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21 Apr. 2017].Phillips, S. (2012). CBBC
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Online shopping in China grows 26.2% in 2016


[Accessed 23 Apr. 2017].Wang, H. (2016). Forbes Welcome. [online] Forbes.com. Available at: https://www.forbes.com/sites/helenwang/2016/10/16/three-strategies-to-win-in-chinas-e-commerce-market/#8bdf0c45797d [Accessed 21 Apr. 2017]. Wang, X. and Ren, J. (2012). How
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[Accessed 14 Apr. 2017].
 

Impact of Technology on Amazon’s Business Strategy

Applied Management

Strategy is about how businesses adapt the active and developing world. Thompson, M. Scott and Frank Martin (2014) suggested that this world is changing constantly regarding competition, fashion and scientific/technical knowledge. Therefore, the businesses have to be aware in order to manage their important resources, stakeholders and fulfilling customer’s needs or expectations. First section of the essay will be focused on literature review where we’ll be contrasting views on research conducted by different authors. Amazon’s business history will be discussed including market value, market position, competitors as well as their strengths and weaknesses and strategy. Furthermore, a case study based on Amazon will be used to analyse and justify the strategic management by using PEST analysis framework which has four aspects of strategic behaviour: Political, Economic, Social and Technological (Baines, P., Fill, C. and Rosengren, S., 2017). This essay will explain how modern technology is having an impact on Amazon and its business strategies. Finally, essay will be summarised with the key arguments mentioned in literature review and case study and also, some recommendations will be provided at the end regarding how Amazon can perform better by adapting business changes.

Literature review

Thompson, M. Scott and Frank Martin (2014) mentioned that strategies are there to help the managers and organisations with making decisions and taking actions to achieve either short-term or long-term set targets and purposes. The organisations sometimes outline their purposes under the mission statement and strategies can help clarifying specific actions related to the mission as well as measuring progress. Whereas, Rumelt (1979) notes that, strategy really depends on the situation; depends where you are and an individual’s strategies could be another’s tactics which means that the tactics we’re discussing today, might be used as strategy tomorrow (Mintzberg and Quinn, 1992). Moreover, they considered all issues in the businesses to be treated equally important as you never know which issue can result in massive trouble in the future. Hence, review each issue and make suggestions or strategies upon them.

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The business market changes constantly and they can cope with these changes and compete with their rivals by performing different strategy and long-term planning. Competitive advantage can be found how business differentiate themselves from their competitors, in the eyes of the customers and providing lower cost products and services and still make great profits (Martin, 2016). The companies can improve their performance either by focusing on cost or differentiation. This simply means that they can either provide low-cost products or services to their customers or introduce something new which makes them stand out from their competitors. Focusing on one of these methods can be really beneficial for the business performance (Business strategy and the impact of performance, 2015). It is believed that the competitive advantage has become concern for the managers as they know how hard it is to compete in today’s market and they can’t just sit back and think that the famous products will sell themselves. They understand that they have to work hard in order to maintain their business performance by using competitive strategies (Martin, 2016). Similarly, “Johnson et al. (2007) suggests that strategy is something people do (strategy process) and that organisations have (strategy content)”. David (2017) states that the strategy is how people manage or organise resources to enhance performance of an organisation.

Fred and Forest (2016) described strategic management as “the art and science of formulating, implementing and evaluating cross-cultural decisions that enable a company to achieve its objectives. The aim of strategic management is to exploit and create new and different opportunities for tomorrow; long-range planning, in contrast, tries to optimize for tomorrow the trends of today”. It is noted that the organisations must monitor their internal and external events and activities so that they can make changes as required. Strategic management helps businesses to adapt the changes as if they do not change the way they operate, according to today’s trends, then it is most likely that they will find it hard to survive in the market. Strategic management process is aiming to allow businesses to adapt effectively to change over the long run (Fred and Forest, 2016).

 

Kotler (1998) claims that PEST analysis is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations. The use of PEST analysis can be seen effective for business and strategic planning, marketing planning, business and product development and research reports. PEST also ensures that company’s performance is aligned positively with the powerful forces of change that are affecting business environment (Porter, 1985). In analysing the macro-environment of an organisation, it is important to identify the factors that might in turn affect a number of vital variables that are likely to influence the organisation’s supply and demand levels and its costs (Johnson and Scholes, 1993). The analysis examines the impact of the factors on the business. The results can be used to take advantage of opportunities and to make contingency plans for threats when preparing business and strategic plans (Byars, 1991).

PEST has been conventionally used in two different ways: first, to analyse the position of a particular organisation or industry sector within a particular business environment; second, to analyse the viability of general management solutions in a business environment (Guo and Miguel, 2007).

“SWOT Analysis is a simple but powerful tool for sizing up an organisation’s resource capabilities and deficiencies, its market opportunities and the external threats to its future” (Thompson et al., 2007). The acronym SWOT stands for strength, weakness, opportunities and threats.  SWOT is used to evaluate an organisation, plan or project where the management can identify the organisational and environmental factors. It has internal and external dimensions where organisational factors as well as strengths and weaknesses are included in internal dimension and environmental factors, also opportunities and threats are included in external dimension (Uluslararasi Sosyal, 2017).

Amazon: Case study

Jeff Bezos and his wife MacKenzie opened an online bookstore in Seattle in 1994. People started investing in their business and due to high demand, they opened up a second distribution facility in 1997 and they also added music into their business. They started selling clothing in 2002 and also introduced Amazon web services where they started earning high revenue. In 2012, Amazon buys Kiva Systems, a warehouse of robot makers which helped them to fulfil orders faster, without the need of much human staff. Amazon has described itself as “customer-obsessed” as they put customers as their priority and wants to fulfil their needs in order to be more successful in this technological revolution (CNN Business, 2019).

According to Fortune (2018), Amazon shares crossed the $2,000 threshold for the first time, placing its market value around $1 trillion. Businesses like eBay and Netflix are counted as their main competitors. People visit Amazon for basic clothing, but when it comes to fashion, they have to find some other website or business and they are also being unable to provide different sizes, which are their weaknesses. Whereas, IT has contributed a lot towards Amazon’s success rates where they keep track of customer’s buying behaviour and then offer them specific items or relevant products which they might like. It is also one of the leading online retailers in the market and also using robots to get work done quicker in order to fulfil their customer’s orders on time and gain customer satisfaction.

PEST Analysis

PEST analysis is a framework consisting 4 different factors of political, economic, social and technological which can be used to identify the external environment of the business. It is used by the businesses to support their strategic analysis activity (Joseph, 2014). This section will be based on analysing Amazon’s external environment by using PEST Analysis.

Political factors are related to governmental policies that can have an effect on businesses such as tax policies, corruption level, trade control, health & safety and laws & regulations.

According to Brian, Itzhak and Hoonsuk (2014), not all of the online businesses pay sales tax which results in pressurising the local retailer stores in the area or state. It also puts employment rates at risk and affecting income tax revenues. Laws has been introduced in order to ensure that the states are responding to tax policies such as “Amazon Tax” where Amazon has been affected because it is one of the famous online retailers. It was always a question in e-commerce businesses that who should be responsible to collect the taxes. Therefore, the rule of “nexus” applies. If the seller has a store in the state where the buyer lives, the seller must collect sales tax. But if the seller has no store in the buyer’s state, the buyer is responsible for paying sales tax (which is called a “use tax”) to the state and local government (James and Wing, 2001).

Amazon believe that they are one of the safest places to work as they have created more than 25,000 jobs in Britain which includes good wages and benefits. But it has been claimed that more than 440 serious incidents occurred at its warehouse in 2015-16. The union has found that employees had fractures, contusions and head injuries at the workplace. It has been claimed by the employees that unsafe driving leads to several accidents at their warehouses which puts employees lives at the risk as well as people living in the surroundings. However, Amazon said that their company has 43% fewer injuries on average than other UK transport and warehousing companies (Motor Transport, 2018).

Economic factors are connected to the financial state of economy on a greater level- whether that be local or global. The economic factors affecting businesses include currency exchange rates, labour markets, economic growth, unemployment rates, demand of products and wage policies (Abhishek, 2013).

According to Trading Economics (2019), The UK unemployment rate fell to 3.8% at the starting of 2019. It has been noticed that the employment increased by 99,000 whereas the unemployment dropped by 65,000. The unemployment rates in the UK rose from 5.2% to 7.9% during recession period of 2018 and it was still 7.8% in 2013. There were also people who were underemployed which means that they were employed but getting limited hours to work. They wanted to work more hours but because there wasn’t enough demand for products in the economy which was affecting their working hours (David and David, 2013).

Amazon has been ranked as the 16th largest Indiana employer, with 8,500 full-time employees and as they are growing their business, they are hoping to hire more and more people. They are providing more job opportunities to local people and also, they have announced an increase in national minimum wage of their employees which is $15 per hour which will be paid to full-time, part-time, temporary and seasonal employees. Amazon said that this change will affect more than 250,000 employees as well as over 100,000 seasonal workers. This change also had an impact on local businesses such as there will be shortage of workers in other local warehouses as people would want to go with the company providing them better wages. Other local businesses might have to either increase their employee’s wages or use more technology where it will reduce the demand for people needed at the workplace (Susan, 2018).

 

According to Sridhar, Sachithanandam, Mageswaran, Purvaja, Ramesh, Senthil Vel and Thirunavukkarasu (2016), social factors are the circumstances that influence and affect the way you live and behave. These factors are any variable which arises from culture, environment, society, religion, language and communication. For instance, how the population or ethical standards of a country affect the way a business operates.

According to Office for National Statistics (2018), “The UK population has doubled over the last 140 years, reaching a new high of 66 million people in 2017. They estimated that there’ll be almost 73 million people in the UK by 2041”. The population growth is because there is an increase in number of births than deaths and more people moving to the UK than leaving (Dick and Kim, 2012). ONS said that population is also ageing and estimated that more than a quarter of UK residents will be aged 65 or over within the next 50 years. Considering ageing population in mind, the businesses like Amazon has to be very aware about their preferences and shopping behaviours as it assumes that an individual’s shopping preferences are established during their 20s-30s, after this it’ll be very expensive for businesses to change their preferences or shopping tastes (William, 2007).

Ethics are code or behaviour that most people would agree to and business ethics are moral principles that guide the way a business behaves. It is basically distinguishing between “right” and “wrong” and then choose “right” choices to perform business (Marie-Joelle and Roger, 2015). For instance, Amazon is operating globally, and they promise people to operate ethically but the safety and well-being of employees is not a priority at Amazon. It has been reported that people who suffered from cancer, miscarriages and other crises said that they had been evaluated unfairly or edged out rather than given time to recover. This is an unethical way of treating people at the workplace which affect the business reputation as well as having an impact on health and safety’s rules and regulations (Georgina, Greg and Michael, 2012).

Technological factors have two aspects: the development of new technologies which can help to build designs and the use of technology in the design process. These are the variables that are being used for evaluating available alternatives with respect to technological capabilities. The businesses consider it an important tool for improving operations and functions (Jackie, 2014).

Technology plays an important role in business growth. Amazon started off with using 1300 robots in their fulfilment centres in 2011 and the numbers increased to 30,000 robots to be used in 13 fulfilment centres. The lifting capacity of robots is 750 pounds and it takes them 15 minutes to lift heavy weight from one place to another in the warehouse (Robert, 2016). According to an article “Professional Safety” (2019), Amazon has also managed to fit a new device in robots which helps them to recognise if someone’s coming from a distance and slowdown in order to avoid any incident; ensuring health and safety at the workplace. Robots help them to get the job done easier and quicker and they also contribute towards the success and growth of a company.

Robots can beneficial in certain ways for a business such as they help in reducing the operating costs of the business which is related to manufacturing of products or moving high weight things. It will also help reducing the direct costs which include labour cost. For instance, Amazon has replaced human workers with robots which has direct impact on company’s different aspects such as health and safety, training and employee administration. If they use robots, then they’ll have less responsibility as compared to if they have an employee working for them (Mike, 2014).

Similarly, robots can be used seven days a week. They are not required to have a break or there’s no limitation like they have to work certain hours a week. They are always ready to use which helps in increasing the production output rate of a business as robots will be useful for them to carry on with the work required throughout the whole day. In addition, the company save money by using robots where they can remove some job roles in order to reduce the labour. They can also reduce the cost related to recruiting new staff and training and save that time to focus on robots manufacturing or performance rate (John, 1989).

Amazon relies heavily on technology as e-commerce is part of technology which is making them stand out from their competitors in the market. They are using digital technology to build relationships with their customers such as if a customer had a look at any product on their website, they send the customer a reminder via email, hoping that the customer might buy it and they also mention similar products which matches customer’s search history. This is how they try to interact the customers and try to sell more products. They also have a 24-hour live chat support where the customers can ask any queries they have, whether it’s regarding faulty products, refunds or exchange (Amazon, 2019).

Conclusion & Recommendations

To conclude, we can consider Amazon as a highly technology-based company because they’re one of the famous online retailers using robots and latest technology in their warehouses. PEST analysis is the best framework to use in order to analyse Amazon’s external business environment where the competitors and other issues will be easy to find and being able to work accordingly. Robots are helping in increasing Amazon’s productivity level because they’re faster, easier and quicker to use comparing to a human being. This is why they are and should be investing more in technology because the more convenient and friendly services they will provide to their customers, the more successful they will be. They need to keep customer’s needs and expectations at their heart in whatever they do, so they can carry on making more profit as well increasing customer satisfaction.

It is strongly suggested to Amazon to try to focus on their employee’s health and safety because several incidents have been noticed where employees are not treated well; they are being used just as a machine which is counted as an unethical behaviour of a business. Amazon should try to focus more on employee well-being by asking their suggestions such as having regular group or one-to-one meetings or put a suggestion box in the canteen/office. This will be an easier way to get feedback from employees regarding how they feel about the company and what they want them to change. Their business strategy should be focused on their “People” because if the employees are not happy, then they are unlikely to serve the customers effectively. A satisfied and happy employee tends to contribute more towards business growth.

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Wilson, M. (2014). Implementation of Robot Systems: An Introduction to Robotics, Automation and Successful Systems Integration in Manufacturing. [e-book]. Elsevier Science & Technology: ProQuest Ebook Central. Available through: https://ebookcentral.proquest.com/lib/bcu/detail.action?docID=1874373. [Accessed 18th May 2019].

Whyatt, G., Wood, G. and Callaghan, M. (2012) Commitment to business ethics in UK organisations. European Business Review. 24(4), pp: 331-350. Available at: http://dx.doi.org.ezproxy.bcu.ac.uk/10.1108/09555341211242141.

Yang, J.G.S. and Poon, W.W (2001). To Tax or Not to Tax: Tax Freedom or Free Ride? Strategic Finance. 8th edition. p.45. Available at: https://go.galegroup.com/ps/anonymous?id=GALE%7CA78174702&sid=googleScholar&v=2.1&it=r&linkaccess=abs&issn=1524833X&p=AONE&sw=w [Accessed 14th May 2019].

 

Evaluation of Amazon’s Work Environment

What Makes Amazon the Best Place to Work and Why?

 I have always been interested in working at the world’s reputable company; Amazon. As such, I have often had a keen interest in the history of the company. Based in Seattle, the firm is an e-commerce corporation. Notably, it is among the top organizations that sell their products online. Jeff Bezos founded it in the year 1994, and soon after in 1995, he launched it (Schneider, 2018). Markedly, any individual of a certain age is likely to remember that the firm began a bookstore that operates online. Shortly afterward, it diversified its products and added other commodities such as clothing, electronics, video games, music, as well as DVDs. About half a decade after its inception (in the year 1999), its founder Mr. Bezos was listed in the Times Magazine as the “Person of the Year” (Schneider, 2018). He strikingly received the honor because of the success of the business in popularizing the kind of shopping that is carried out online. Remarkably, the Amazon organizational culture puts it in an apt capacity of responding to the e-commerce demand. Distinctly, the corporate culture of any company usually sets the values and the traditions that influence the behaviors of its employees. For instance, the corporate culture of Amazon often pushes the workers to go yonder the traditional conventions and limits to establish the solutions and idea that are deemed bright (Meyer, 2017). With this overview, this paper portrays the facts concerning the Amazon Company as to why it is the best place to work, and the reasons therein.

Amazon’s Fundamental Driving Forces That Shape its Environment

 As one of the global best internet performing seller, the firm continues to look for the fresh and new talents. Nonetheless, to retain a workforce that is well capable, the company usually reinforces its culture to mold the human resources’ development for a long-term competitive edge in the global marketplace (Meyer, 2017). Moreover, the firm strives to place its workforce diversity, technological innovation, as well as ethics and morality at its best. To achieve these fundamental driving forces, the firm primarily focuses on globalization, digitization, diversification, as well as setting up the workplace policies that guide the staff and human resources.

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 Globalization has made the whole world to be a global village, drawing all the countries into an economic system that is one (Morris, 2013). Amazon, through the internet, has made most consumers to take part in the online shopping. Markedly, this has been made possible through technological innovation and advancement, which all can be wrapped into the package of globalization. As such, a lot of people are participating in the online spending, which surpasses the countrywide borders (Morris, 2013). The implication and the power of technical innovation allude that it is impeccable to Amazon to comprehend both the future and the current impacts of the global inclinations on operations, to set up a globalization approach to epitomize the opportunities of learning via exposure to various consumers across the global marketplace.

Due to its global nature, Amazon has diversified its workforce as well, with about 270,000 workers across the globe (Schneider, 2018). The affinity groups of the firm comprise of the blacks, whites, males, females, the Hispanic, as well as Asians. Apart from women in engineering at Amazon, there is also a black employee network. In addition, it is in support of the STEM education. It also helps a lot of female learners, as well as the students of color to tail their occupations in engineering and technology. According to my understanding, the company does not participate in any practices that are immoral and unethical. Some private contractors of Amazon may engage in decadent practices; nonetheless, such do not reflect on it because the company is never directly tied to these unethical doings. It offers reasonable and affordable prices on goods and services, made technical innovations, and they hire diverse human resources, setting the online shopping standards.

Amazon’s Specific Practices and Their Key Influence on Its Outcomes

 The best practices concern the finding as well as using the best ways of carrying the business processes to attain the set goals and objects. Also, they involve being updated concerning the manner in which the best organizations operate. As a collective knowledge, Amazon triggers its workers to evaluate ideas and embrace risks. Remarkably, such a condition is what drives the capacity of the company to try to find new chances to utilize the processes that are data-intensive to offer the online retail service that is both effective and efficient (Meyer, 2017). Benchmarking is among the best practices available for Amazon. It means getting to learn and gain experience from other companies in the industry. Through benchmarking, Amazon can successfully compare itself with other firms such eBay to highlight the sections that could call for improvement.

Other Amazon specific practices are boldness, peculiarity, and customer-centricity (Meyer, 2017). The company fosters boldness among its personnel, and this is depicted in the manner in which it pioneered to market a vast collection of items, which initially began with books. Additionally, its workers are usually reinvigorated to take risks like considering new-fangled ideas, which largely enables the firm to solve issues and enhance their business online. Customer-centricity is captured in the vision statement of Amazon and its organizational culture (Meyer, 2017). For instance, it encourages the employees to focus on the needs and the demands of its customers such as altering the preferences of consumers; subsequently applying them in its e-commerce and business expansion. Peculiarity as Amazon’s practice is taken to refer to the notion of thought-provoking conventions (Meyer, 2017). According to Meyer (2017), Amazon has a belief that conventions often impose restrictions on the potential growth of the business; hence, motivating its staff to reckon beyond their noses to catapult the company to its full capability. Markedly, these practices have an un-underestimated influence on the Amazon’s outcomes. First, they enhance its competitiveness. They also increase their sales, improve the workforce’s skills, improve quality and minimize wastes, and rapidly respond to innovations in its sector.

The Practices Related To Work Attitudes in the U.S Companies That Are Largely Affected by Diversity

 The need to practice inclusion and employee diversity is among the chief work attitudes in the American organizations. Firms like Google that have the diversity programs, which are the most successful are utterly different from other corporations. The CEOs together with the senior organizational managers are the prime diversity advocates in the U.S organizations. The inclusion practices ensure that every employee from a diverse background can contribute and remain in the organization with chances to progress and flourish. The strategy to address the diversity is to employ and promote the females. Markedly, women are the under-tapped or the untapped resources that can largely contribute to the company.

Conclusion

 Based in Seattle, Amazon is an e-commerce corporation, which is among the top organizations that sell their products online. It was founded by Jeff Bezos in the year 1994, and soon after, launched it in 1995. As one of the global best internet performing seller, the firm continues to look for the fresh and new talents. It principally focuses on globalization, digitization, diversification, as well as setting up the workplace policies that guide the staff and human resources. Due to its global nature, Amazon has diversified its workforce as well, with about 270,000 workers across the globe. The best practices concern the finding as well as using the best ways of carrying the business processes to attain the set goals and objects. Benchmarking is among the best practices available for Amazon. Other Amazon specific practices are boldness, peculiarity, and customer-centricity; and these practices have an un-underestimated influence on the Amazon’s outcomes. They enhance its competitiveness, increase their sales, improve the workforce’s skills, improve quality and minimize wastes, and rapidly respond to innovations in its sector. Finally, the need to practice inclusion and employee diversity is among the chief work attitudes in the American organizations, and the strategy to address the diversity is to employ and promote the females.

References

Meyer, P. (2017). Amazon.com Inc.’s Organizational Culture Characteristics (An Analysis) – Panmore Institute. Panmore Institute. Retrieved 21 April 2018, from http://panmore.com/amazon-com-inc-organizational-culture-characteristics-analysis

Morris, L. (2013). The Driving Forces of Change | Innovation Management. Innovation Management. Retrieved 21 April 2018, from http://www.innovationmanagement.se/2013/07/18/the-driving-forces-of-change/

Schneider, L. (2018). Understanding Amazon.com’s History and Corporate Culture. The Balance Careers. Retrieved 21 April 2018, from https://www.thebalancecareers.com/amazon-com-company-research-2071316

 

A Critical Analysis of Amazon’s Approach to People Management

Amazon was established by Jeff Bezos in 1995 as an online bookstore, but it has rapidly developed into one of the largest e-commerce companies with 224,000 employees worldwide (Rossman, 2016). In 2018, Amazon became the world’s second largest company by market value with over $900 billion (Bhatnagar & Jaiswal, 2018). Its great business success is closely related to the unique business model and people management. However, the company has also received much criticism due to its harsh approach to manage employees. According to a report released by Kansas University, comparing to other internet companies (e.g. Apple, Google), employees of Amazon are less satisfied with their jobs (Matthews et al., 2018). That is to say, there are still some drawbacks in the company’s human resource management HRM practices. Based on relevant concepts, theories, and facts, this paper critically analyzes Amazon’s approach to people management and makes recommendations for its future HRM practices. Specifically, this paper describes, analyzes, and evaluates Amazon’s strategic human resource management (SHRM), recruitment and selection, performance and reward management, and finally makes suggestions for the company.
1. Strategic human resource management (SHRM)
Since the first day of sales, Bezos has always been dedicated to improving social efficiency and creating more value (Rossman, 2016). Amazon’s strategic goal is abandoning short-term profits but aiming to obtain long-term competitive advantage. Amazon is a just company, but it has a flexible and dynamic structure. To support Amazon’s corporate strategy, the company has established a unique “two pizza rule”, namely teams should be as small as only need two pizzas as a meal. Small teams ensure high sensitivity and high involvement (Rossman, 2016). Besides that, Amazon’s corporate culture pushes staff to go beyond conventions to develop innovative ideas and solutions. Amazon has a complete employee training program. The company sees each employee as a growing talent, and makes staff training as an important way to develop personality and capability of employees (Amazon, 2018). For example, Bezos often stressed that, employees’ personality should be treated equally with group character of Amazon through training (Kantor & Streitfeld, 2015). In particular, Amazon’s training program helps employees to get involved in the organization culturally and spiritually. When they have an in-depth understanding of Amazon’s business philosophy, they will be able to better perform their personality and ability.

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Amazon’s above practices can be explained by SHRM theory. SHRM indicates that an organization should find a way to connect HR decisions with strategic goals or to make best practices a way to improve organizational performance. Pfeffer (1998) summarized seven best practices, including reducing status differences, high pay contingent on group, employment security, practicing open-book management, organizing staff into self-managing teams, investing in people, and being selective in recruitment. In addition, Schuler and Jackson (1987) argued that HR policies and employee behaviour should be fit with strategy of an organization. Amazon’s HR practices to a large extent are consistent with Preffer’s seven best practices. In particular, the company organizes small teams to reduce differences in status, encourages self-management of employees, and invest much in staff training and development. Amazon also advocates in-group and departmental sharing to trigger creativity. The SHRM model of “best fit” explains how senior management decisions effectively align with employee behaviour to develop Amazon into a successful e-commerce giant. As employees clear understand and recognize the corporate culture and work in a flexible team-based manner, they will be motivated to propose new ideas and improve organizational performance.
Research findings of SHRM to a large extent can explain Amazon’s HR policies. For example, Amazon’s “two pizza rule” and aggressive corporate culture fit Preffer’s best practices in several aspects. Besides that, Amazon really systemically designed and arranged its human resource activities (e.g. staff training) to support pursuit of strategic goals (e.g. constant innovation, create added-value to society), which is consistent with the definition and characteristics of SHRM (Wright & McMahan, 1992). However, SHRM theory still has some limitations. For example, Amazon has multiple departments with different functions and job positions (e.g. technical, financial, marketing, logistics), which leave a question with SHRM, that is whether it is necessary to develop different HR polices for different employees. If so, a variety of broader fairness issues will occur. Besides that, the concept of “best practices” is paradoxical, because they are situational and not the norm in many cases.
2. Recruitment and selection
Bezos has made a strict process to recruit talents and select candidates. Amazon implements a standardized and simplified recruitment mechanism supported by Bar Raiser. The company has two mandatory recruitment standards, including performance and qualification (Rossman, 2016). Meanwhile, the company attaches much importance to potential long-term value contribution of employees. Amazon assigns Bar Raisers to strictly evaluate candidates from the perspective of corporate culture and leadership principle (Heskett, 2015). Bar Raisers also discuss with other interviewers at the final selection stage and have the veto right, so as to ensure candidates can improve talent standards of the entire organization. Bezos believes that having a diverse staff team is the key to Amazon’s constant innovation and long-term competitiveness, so he embraces creative talents from diverse backgrounds (Bhatnagar & Jaiswal, 2018). As a result, Amazon’s staff team includes professional skater, literature scholar, artist, rock singer etc. To control recruitment cost, Amazon does not adopt traditional writing test, but implements online application and screening.
Recruitment and selection are two indispensable HR policies in most modern organizations. The process usually consists of business or workforce needs, job-competency analysis, job description and personal specification, attracting application, candidate selection, make appointment, joining and introduction, which is valid in the case of Amazon (CIPD, 2013). Barber (1998) defines recruitment as activities with the basic purpose of attracting and identifying potential employees. Obviously, Amazon’s activities and practices around recruitment can profoundly influence the specific type and number of candidates, job acceptance and whether applicants withdraw from the recruitment process. For Amazon, recruitment is of great importance to organizations because less applicants can lead to lack of talents, while improper recruitment can bring extra costs on training. Amazon has developed a “brand” as an ideal place to work (CIPD, 2015). The company always stresses “we are creating history” and “we were establishing a permanent enterprise” to attract innovative talents with a belief in Amazon. As for selection, it is a process that managers adopt certain tools to choose from a pool of candidates for job vacancies (Bratton & Gold, 2012). Memon et al. (2014) argue that, when selecting people, organizations need to apply person-organization (P-O) fit, because it helps organizations gain competitive advantage, attract and retain talents for long-term development, and reduce turnover. Amazon attaches extreme importance to P-O fit. For example, the company only selects those candidates with a great understanding of its 14 leadership principles and a firm belief in Amazon’s future (Rossman, 2016).
Existing theories of recruitment and selection to a large extent can well explain Amazon’s activities and practices. The company makes recruitment and selection a key part of HRM and sets strict standards to achieve P-O fit. Amazon’s recruitment policies have a strategic basis, because senior management see talents as a source of sustainable competitive advantage. In addition, Amazon’s recruitment and selection activities demonstrate validity and value of employer branding. Specifically, Amazon has successfully branded itself distinctive with intangible qualities and attributes to attract to talents who will perform their best in the organizational culture. However, many studies show that interviews cannot ensure P-O fit effectively, because an interviewee may conceal the true self intentionally to appeal to the potential employer (Pilbeam & Corbridge, 2010). It is paradoxical that Amazon and many other organizations still adopts the interview approach to select candidates.
3. Performance and reward management
Amazon has a controversial performance and reward management system. Amazon (2018)’s compensation system consists base salary, signing bonus, and restricted share units (RSU). It also provides many welfares to employees, including medical insurance, 401(k) plan, family support network, adoption subsidy, Leave Share and Ramp Back, employee discount, and paid leave. Amazon offers limited incentives to new employees, but provides more incentives to those who have served the company for two years or more, so as to reduce costs and retain talents with a high involvement in the organization. Amazon implements a comprehensive performance management system. There is no specific team performance evaluation, because it is determined by the performance of team leader (Matthews et al., 2018). The company organizes a simple mid-year assessment in each September, and conducts year-end review from December to next April (Bussin, 2016). Meanwhile, decisions about salary adjustment and promotion mostly occur at the end of each year. Performance assessment requires staff to offer self-evaluation and peer review based on the 14 leadership principles, so the workload is very heavy. Also, the company encourages employees to inform against each other, while the management can receive instant feedback. Before the 2016 reform, Amazon even ranked employees’ performance and dismissed those who performed most poorly(Kantor & Streitfeld, 2015). 
Performance management is widely seen as a connection between individual contributions and organizational targets. Performance management can be divided into a harder performance improvement approach and a softer motivational and developmental approach (Houldsworth, 2004; Tuytens & Devos, 2012). In the case of Amazon, the harder approach of performance improvement is applied, because the company imposes much stress on staff through transparent peer review. Meanwhile, unlike typical American internet enterprises, Amazon is more of a traditional organization. Traditional performance assessment systems offer a standardized process to review employee performance (Houldsworth, 2014). The systems in Amazon are designed centrally by HR functions and require line manager to appraise staff performance within a set of performance review meetings or reports. In addition, performance-related pay is adopted by many organizations, including Amazon. Based on McGregor’s Two-Factor Theory, employees’ reward perception can be divided into internal (e.g. work-life balance, development opportunities) and external (e.g. salary level, working environment) (Pilbeam & Corbridge, 2010). In Amazon, human resource value consists of two parts. One is labour reward or traditional salary, and the other part is capital reward or RSU. When maintaining a competitive basic salary, Amazon also implements employee stock ownership, which realizes a close combination between individual goals and organizational goals.
Existing concepts and theories can effectively explain Amazon’s performance and reward management. In order to attract and retain talents, Amazon shares its profits with each employee. This can be explained by the Two Factor Theory. Besides that, Amazon’s performance appraisal mechanism shows that the organization is traditional and strict in performance management. Scholars found that, performance-based pay is controversial, because it can lead to pressured working environments, internal competitiveness, and unfairness (Marchington & Grugulis, 2000). This might be true in Amazon, because the organization was criticized as bringing excessive pressure on managers and employees with the transparent peer-review, relentless criticism to employees, overtime, and crazy pursuit of high performance.
4. Conclusions and recommendations
In conclusion, Amazon’s approach to people management has both strengths and drawbacks. The company implements effective SHRM practices and standardized recruitment and selection process with a focus on P-O fit. Therefore, Amazon has established its brand as an innovative and efficient company that always pursues to create more social value. It also attracts many creative talents who have a firm belief in Amazon’s culture. The company also implements a cost-effective reward management system to attract and retain talents, especially with abundant welfare and stock ownership. However, Amazon’s performance management is too harsh. The company always pushes employees to work more with excessively high requirements. As a result, many employees are unsatisfied with the highly pressured working environment and fail to balance their work and life. Amazon’s extreme pursue of high performance has led to a relatively high turnover, which inevitably damages the company’s reputation and increases human cost. Paradoxically, Amazon claims to be a company of pioneers, but it did not offer proper treatment to pioneers, the most important asset for competitive advantage.
It is suggested that Amazon should adjust its performance and reward management system to reduce unfairness, stress, and unreasonable internal competitiveness. For example, Amazon should improve its supporting network to help employees balance work and life more effectively. Instead of rigidly pushing high performance, Amazon should understand real needs of employees, so as to adopt proper spiritual incentives to motivate enthusiasm and innovation. Amazon should create a more favorable working environment to employees to avoid overexploitation and high turnover. In all, Amazon’s HRM should be more people-oriented rather than performance-centered.
References

Amazon. (2018). Working Amazon. Retrieved: https://www.amazon.jobs/zh/working/working-amazon. On 10 December 2018.
Bhatnagar, J. and Jaiswal, S. (2018). Amazon as an employer. Retrieved: https://hbsp.harvard.edu/coursepacks/575394. On 10 December 2018.
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CIPD (2015) Research Report: Attitudes to employability and talent. London: CIPD.
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