SFM.docx - 1 Strategic Financial Management 2 Table of...

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Strategic Financial Management

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Table of Contents
Introduction ..................................................................................................................................... 3
PEST Analysis of Online Retail Industry (Amazon) ........................................................................... 3
Political Factors ............................................................................................................................ 3
Economic Factors ......................................................................................................................... 4
Social Factors ............................................................................................................................... 4
Technological Factors ................................................................................................................... 5
Porter’s Five Forces for Amazon ...................................................................................................... 6
Threat of Existing Rivalry ............................................................................................................. 6
Bargaining Power of Customers ................................................................................................... 6
Bargaining Power of Suppliers ..................................................................................................... 7
Threat of Substitutes .................................................................................................................... 7
Threat of New Entrants ................................................................................................................ 8
Current Strategic Position of the Company ..................................................................................... 8
4 Future Strategies for Amazon ..................................................................................................... 11
Screening of Options – A winning Strategy ................................................................................... 12
Conclusion ...................................................................................................................................... 13
References ..................................................................................................................................... 14

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Introduction
The second part of the assignment revolves around the strategic analysis of the business
selected for this purpose i.e. Amazon Inc. This part covers the PEST analysis, Porter’s five forces,
and other strategic business analysis tools. At the end of this second part, the assignment is
concluded and recommendations pertaining to improvement of strategy for Amazon are also
provided for the even higher success of business.
PEST Analysis of Online Retail Industry (Amazon)
The PEST analysis is carried out to analyze the macro factors pertaining to an industry. It is one
of the most common tools to analyze the external environment for a business in specific or
industry in general. The term PEST stands for the study of political, economic, social,
technological, environmental and legal factors that can affect an industry. 1 In this case, the same
factors are highlighted in the case of Amazon as discussed in the sub-sections below.
Political Factors
Multiple political forces affect the online retail businesses at any given time. The global online
retail businesses like Amazon are subject to political forces of more than one country as per
their operations. 2 The following points summarize the key political factors that can affect the
Amazon and other online retail businesses:
 The online retail companies mainly operates in multiple countries including the
developing countries; it has been observed that politics of developed countries are
stable now. This political stability motivates the owner to increase investment for the
growth of business.
 Another political factor is government support for e-commerce in the countries where
online retail industries is operating. This factor presents an opportunity in some
countries and a threat to the others. 3
1 Rothaermel, F. T. (2015). Strategic management . New York, NY: McGraw-Hill.
2 Ibid, 1.

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 The third political factor is that the governments of most of the countries are not
focused on cyber security which enhances customer confidence and experience in the e-
commerce industry.
Economic Factors
The performance of Amazon is highly dependent on the economic cycle of the countries, it is
operating in. Being an e-commerce venture, the business operates in multiple economies and is
affected by an economic cycle of each country. The economic factors affecting the Amazon and
e-commerce retail industry can be summarized as follows:
 The instabilities in an economic cycle around the globe and potential for global
recessions are two big economic threats to the online retail industry. Recently, there has
been a global crisis which initiated in 2008 and affected almost all the economies. The
world growth declined from 5% in 2007 to 3.75% in 2008 and further slumped to just
over 2% in 2009. Initiation of any new global recession has great potential to harm the
online retail industry.