Posted: September 19th, 2020

Amazon Risk Analysis – SWOT Analysis

Amazon is a public company founded in 1994 by Jeff Bezos. Its headquarters are in Seattle, Washington, USA. The company’s main focuses are cloud computing, artificial intelligence, digital streaming, and e-commerce, and it deals with products such as amazon.com, whole foods market, alexa.com, and many more. It is the world’s leading online retailer, with over three hundred and ten million active users and over one hundred million subscribers worldwide (Zhu & Liu, 2018). Its revenue makes it the largest internet company. In the United States, it is ranked as the second vast private proprietor, with close to one million employees, and is also one of the world’s most valuable companies.

On amazon’s website, its product lines include media such as DVDs, books, software e.t.c, electronics, children’s items, health care items, sporting materials, to name a few. It also owns many subsidiaries all over the world, which include Twitch and Audible. It has various distribution facilities, which include seventy-five fulfillment centers and over twenty-five sortation sites. These sites employ over one hundred and twenty-five thousand employees. These employees are responsible for activities including but not limited to, storing goods and recording their locations, sorting and packing orders, inspecting goods, and shipping processes. Employees are given hand-held devices that monitor their progress rates. Some of these storage centers are automated using systems built from Amazon robotics.

The company allows people to sell items on their platform. Other e-commerce companies also use Amazon to advertise their products. The company has a sales revenue model, where it takes a certain amount from all the items sold on their website, and also earns money from companies who pay to be advertised on their sites. Due to their continuous business expansion, their earnings increase continually.

Risk Analysis

For such a large company, risks are inevitable. It means that risk analysis is essential to ensure the smooth running of the company. Risk is defined as a situation that can result in huge benefits or severely damage a business (Evans, 2017). Therefore, before taking risks, risk analysis should be conducted. Risk analysis involves measuring the potential outcomes of a risk. It aids in making wise business decisions and avoiding financial problems.

In the risk analysis of Amazon, the SWOT technique was applied. It stands for strengths, weaknesses, opportunities, and threats to a company or business. It is used to develop effective organizational strategies, enabling a business to keep up with competitors (Anderson, 2013). It also helps identify available business resources, competencies and deficiencies, prevailing threats, and market prospects. It is employed in business evaluation, initial planning processes, or other company projects, and is essential in determining organizational goals. It is conducted to clarify the current position of a company in comparison to the market’s performance.

SWOT analysis includes two key components; internal and external dimensions. The internal dimension consists of all risks that may occur within a business. It is more specific to a business and is easier to control. It involves factors such as marketing financial, workforce, and operational aspects. The external dimension refers to risks that cannot be controlled. Such risks require a reactive approach to manage. These factors include government regulations, consumer demand changes, changing economy, competitors, and natural disasters (Aven, 2012). Risk analysis gives a picture of the potential outcomes that a business decision could have by establishing the possible rewards or failures that could arise from taking risks.

Amazon’s Strengths

As an online retail giant, Amazon has a strong brand image that has positioned it steadily. The name Amazon is associated with start-ups who want to attract buyers. Other companies partner up with Amazon to push their products in the market. Apart from its brand name’s strength, the name has a monetary value worth 12.5 billion dollars. Its extensive customer base has led it to create products and services tailored to meet most of its customers’ needs. Their products are subjected to creative tweaking and additions such as drone deliveries through differentiation and innovative practices, increasing their appeal to consumers. It has helped set the company aside from its competitors.

Amazon has a wide variety of merchandise. It has one of everything, and this saves time for online shoppers. It lessens the hustle of going to different online websites to get products. Amazon market place meets all the possible needs of the online shopper. It has also provided a platform for third party sellers, hence providing the client with more product choices. Amazon’s “Go global and act local” strategy has made it successful both home and away. The basic understanding of local e-commerce business works to their advantage, and the people’s culture has propelled the company to take giant leaps in the global world.

Additionally, the company is focused and has not lost sight of its goals. Its key businesses being Amazon prime, Amazon web services, and Amazon marketplace, support each other extensively. It has brought about more business ideas, opportunities, customer base, and massive profits. Its superior use of logistics and distribution systems has also given the company an edge over its competitors.

 Amazon’s Weaknesses

E-commerce businesses have become very many. Mimicry of Amazon’s business models is not rocket science. It has the business facing stiff competition from service providers such as Hulu, Barnes & Noble, Oyster, e.t.c. Competition has made the company come up with ways to counter this, such as introducing free shipping. It has negatively affected the business with the loss of business in countries like India. Amazon has had its moments of successful launches, large acquisitions, and expansions. However, that has not made them invincible to losses and product flops. Some of their products encountered significant failures in the market, like the fire phone and kindle fire device. These products did not bring in as much money as imagined due to similar, better products in the market.

Amazon’s Opportunities

Amazon has plenty of options when it comes to investment opportunities. The company is not averse to taking risks, financial or otherwise. They can exploit growing economies in third world countries and can venture into other continents such as Asia and Europe. Whether they venture into Africa or Asia, the financial risks will pay off, and profits will come in. They can take advantage of the business gap in providing products along cultural and religious lines, through partnerships and acquisitions. Amazon can increase interactions with their customers by building more physical stores. It will increase engagement with clients who will be able to purchase products unavailable online. It can also develop more ways to deal with counterfeit products, for example, improving organizational policies.

Threats to Amazon

With enormous opportunities in online sites, Amazon will have a hard time warding off its competitors. The presence of big companies trading in the same line of product and services is threatening their position on the online retail market. Companies such as eBay, Apple Inc, Itunes, Alibaba, and Netflix are giving Amazon a run for their money. Smaller companies are also coming up with business models similar to those of Amazon, thus diluting their products.

With increased offerings of items and commodities online, Amazon is finding it harder to monitor its platform. It has led to a decline in the safety of consumers. The US environmental protection agency has been forced to come in and remove certain pesticides and unhealthy products from its platform. Such acts make their market reputation suffer.

Tax evasion from these highly profitable companies is becoming a concern. If the government issues law on the payment of taxes based on income, Amazon’s earnings will drastically drop. Additionally, more extended delivery periods and high purchasing prices have a habit of losing consumers from online websites to physical stores.

Cybercrime is posing many security risks to Amazon’s network security, and that of its users and cases of online leaks of users’ financial information has become a critical issue. The Amazon web service has come under attack on numerous occasions for risking vulnerable data to unauthorized parties. It has made Amazon educate its users on how to prevent their clouds from being hacked. It has encouraged security risk management by providing handbooks on their platforms.

Security Concerns

Security concerns exist in Amazon when it comes to controlling data access. It is always a risk that someone could release user data by accident. Hackers do not have to get into Amazon’s servers to access the cloud. In the past, there was a case of a hacker gaining access to Amazon web services and setting up a cloud account with them. The hacker went ahead to use their servers to plan an attack on the PlayStation network, compromising hundreds of millions of user accounts, which could have been avoided.

Additionally, Amazon web services operate on a shared security responsibility, which is not full proof. It implies that they secure their infrastructure, while users should have their security. The exposed application structure makes users vulnerable to third party vendors and suppliers, hacking, and breaches.

Defensive Measures

To minimize hackers’ effects, Amazon should encrypt stored data to ensure unauthorized people have difficulty accessing it. For this to be effective, it will require encryption of file and network traffic systems, the addition of encryption for sensitive data (Bisong & Rahman, 2011). Where possible, less-confidential data can be stored in virtual servers, while more essential data gets stored in different locations.

Amazon published and released a document that comprises of the best practices to avoid third party access. The users have been advised to continually update their security configurations, strengthen their firewalls, and any other existing security control. Moreover, they should be careful about who has access to their root network security configuration.

Amazon has a high-risk tolerance, and the company is not afraid to explore risky business ventures. One of their risk management strategies is the leadership strategy, where leaders in the company lead by example. It encourages high performance and individualism. Jeff Bezos works on the principle of embracing risk and thinking out of the box. The strategy always keeps him ahead of the game. Amazon believes that risk is the gap between failure and opportunities, and it is not averse to exploring these opportunities.

References

Anderson, E. J. (2013). Business risk management. Models and Analysis. Wiley.

Aven, T. (2012). Foundations of risk analysis. John Wiley & Sons.

Bisong, A., & Rahman, M. (2011). An overview of the security concerns in enterprise cloud computing. arXiv preprint arXiv:1101.5613.

Evans, J. R. (2017). Business analytics. Pearson.

Zhu, F., & Liu, Q. (2018). Competing with complementors: An empirical look at         Amazon. com. Strategic management journal, 39(10), 2618-2642.

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