Appraising Amazon Business Strategy In China

Question

Task:

1. State your chosen territory (China or India) and give an overview of Amazon’s business in that market (Introduction)
2. Present a summary of your research on the growth rate, locations and statistics relating to your chosen industry in your chosen market. Research and summarise other similar companies’ entry strategies to this market (Market profile & implications)
3. Present a summary of cultural factors which you think may influence business-to-business negotiations and communications (Cultural profile & implications)
4. Based on what you have presented above finish with 3-5 recommendations which are presented in the SMART format (Conclusion & Recommendations)

• Include arguments and wherever possible supporting evidence for each point that you make.
• Where you can justify it, include models (e.g. SWOT and PEST) and other relevant info (extra to the word count), or, if these are just supporting and less central to the argument, give these as appendices.
• If you give models, you must apply these to the case. You should do so by bringing these out in the discussion.

Answer

Executive summary
The present report on Amazon business strategy is based on the appraisal of the business expansion of Amazon in the markets of China. The report relates to the opportunities as well as the challenges that Amazon business strategy faces in order to see for expanding its range of e-commerce products in the Chinese market. The report presents the growth rate statistics and locations of the E-Commerce industry in the Chinese market as well as the cultural factors that can influence the communications and business to business negotiations in the case of Amazon. Amazon is also provided with a range of recommendations that can be followed in order to promote its expansion in the Chinese market.

Introduction
In the present context, Amazon Business expansion can be regarded as Amazon business strategy wherein the growth of a business is achieved with the enhancement of the number of stores in different locations (Xiaoqing, 2018). The present study is developed based on the research conducted to identify the opportunities as well as challenges that the organisation Amazon is likely to face while expanding the range of its goods and services in the Chinese market by applying effective Amazon business strategy.

Amazon is a multinational technology company based on the US and headquartered in Seattle (Amazon.cn. 2020). Amazon operates business worldwide including the Chinese market. However, in the Chinese market, Amazon only operates a limited number of products and services that are the Amazon Web services cross border operations and Kindle e-books. Therefore, Amazon possesses the opportunity to expand its E-Commerce marketplace in the Chinese market and gain increased profitability by having access to the largest customer base in the world.

Can you discuss about the market profile and implications for implementing Amazon business strategy?
The enhancement of internet usage starting from the year 1994 has promoted the implementation of the internet in different industries as well as commercial sectors. Explosive growth and momentum have been identified in the E-Commerce sector of China. In the development process of the E-Commerce industry in China, the Chinese government holds a key role. According to Giuffrida et al., (2018) the development of the E-Commerce industry in China has preceded through different stages that are the initial stage, the accelerated development stage, the standardization stage, and the globalisation stage. In the past few years, E-Commerce transactions in China have encountered explosive growth. Additionally, a strong trend of online shopping has also been encountered among the people residing in China. From the last few years, the online shopping behaviour of the customers in the Chinese market has faced a historical boom. The E-Commerce industry of China is regarded as the biggest e-Commerce economy in the world. According to the reports, the market growth in the E-Commerce sector of China has increased by 26.2% in recent years. Additionally, the Chinese e-commerce sector growth is expected to enhance even further in the upcoming years. It has been evidenced that in China, e-commerce business represents around 15.5% of the total retail sales (Cui et al., 2017). In the year 2016, the turnover generated by the E-Commerce industry was reported to be ¥5.16 trillion.

Revenue growth
In the e-commerce industry of China, the revenue of US$1,001,974m has been reported already in the year 2020. Apart from that, the compound annual growth rate report considered in the study of Amazon business strategy indicates that the revenue of the E-Commerce industry in China is forecasted to display an annual growth rate of 6.9%. This indicates that by the year 2024, the E-Commerce industry of China would result in US$1,309,535m of market volume. According to Yu and Mishra (2020) fashion products are the largest segment of the e-commerce market that is recorded to hold a market value of US$348,700m in the year 2020.

Figure.1: Revenue Growth in the E-commerce industry of China
(Source: Statista. 2020)

Users and penetration rates
According to the reports of the E-commerce sector of china, it is stated in the context of Amazon business strategy that the user penetration rate in the industry is recorded to be 61.8% in the recent year. Moreover, the user penetration rate is forecasted to reach 73% by the year 2024. The percentage of customers who have purchased products through online websites in the last one year was recorded to increase to 92% in China in the year 2018 whereas the growth was recorded to be 93% in the case of the U.S. consumers. The Chinese e-commerce industry is recorded to have 893.8m customers in the year 2020.

Figure.2: The user penetration rate in the e-commerce industry of China
(Source: Statista. 2020)

In recent research, Liu and Walsh, (2019) has explained that the majority of the consumers to shop from the E-Commerce websites belong to the age group of 25-34 years. On the basis of the income level, the people having a medium-income range are more likely to shop from the E-Commerce companies in China.

Figure.3: Consumers in the E-commerce sector based on the income group
(Source: Statista. 2020)

Locations
In the view of Ma et al., (2018) the selection of appropriate locations for business expansion is a significant problem that is required to be solved with greater priority. It has been identified in this study of Amazon business strategy that the right location of warehouses for e-commerce businesses can help a company to decrease the time of delivery as compared to the other organisations. It has been identified that the China’s government has developed inclusive cross-border zones of e-commerce. The E-Commerce industry is subjected to the streamlined procedures of customs clearance and preferential policies of tax. The major locations for the creation of domestic e-commerce branches of Amazon in China are Shanghai, Zhejiang, Jiangsu, and Guangdong. On the other hand, regions such as Shanxi and Qinghai are less prioritized to meet the criterion of the availability for e-commerce zones.

Market entry strategies of other similar organisations
There are numerous e-commerce businesses in the US as well as other countries that are likely to expand their business in the markets of China identifying the potential opportunity in the emerging market (Liu and Walsh, 2019). Although the broad array of products and services and the strong brand image of Amazon are much effective in gaining competitive advantage in the Chinese market, the effective marketing entry strategy of the competitors can have a negative influence on the Amazon business strategy in the Chinese market. In the Chinese market, Amazon business strategy is likely to face song competition from competitors like Alibaba and JD.com Cui et al., (2017) identified that cross-border e-commerce market development is an emerging opportunity for E-Commerce businesses to expand their business in the Chinese market. Competitors like Walmart and Etsy can approach to implement the cross border e-commerce market entry strategy to expand their business into the Chinese market. Apart from that, joint venture is another major opportunity for the other e-commerce competitors of Amazon.

Cultural profile and implications
In recent research, Richardson and Rammal, (2018) has explained that the Chinese and American approaches to business and business-related negotiations and communication appear to be incompatible to each other. In the perception of the US-based organisation, the negotiations in Chinese businesses are indirect and inefficient. Due to the cultural dissimilarity between the two countries the dissimilarity in business negotiations and communications stemmed. Ahammad et al., (2016) has identified a number of important cultural factors that impact on the business to business negotiations and communications. On the basis of these cultural factors, the possible challenges for Amazon business strategy in the market of China can be identified. Intercultural negotiations are subjected to difficulties due to the different elements of culture that are explained below.

Negotiation goals and attitude
It has been identified in this study of Amazon business strategy that the purpose behind the business to business negotiations differs among different cultures. As stated by Chen et al. (2017,) for few cultures the major goal of business-to-business negotiation is to sign a contractand to reach a deal, however other cultures can view business-to-business negotiations as a development of a long-term interrelationship with other business partners for parties. In China, the business to business negotiations and communications stemmed from the will for the development of interpersonal relations rather than having an increased focus on commercial transactions. On the other hand, American organisations like Amazon prioritise signed contracts over interpersonal relationships. Therefore, the purpose of negotiations goes and the attitude to word business-to-business negotiations can create a major difficulty for Amazon in the Chinese market. However, as both the American organisations and Chinese organisations perceive business-to-business negotiations with a Win-Win attitude, the expansion of the E-Commerce business of Amazon in the Chinese market can gain an increased opportunity.

Formal and informal personal styles
Based on the study conducted by Liu and Adair, (2017) in regards to the Amazon business strategy, it can be stated that culture plays a significant role in determining the personal styles of the negotiator and business personnel. There can be to personal styles that are the formal and informal styles in the view of the researcher. With a formal style, the discussion of the personal matters in the business communications can be avoided and greater focus can be paid on the counterparts of the business. On the contrary, with the informal personal styles, business to business communications can lead to the development of friendly relationships with a hasty attempt. There is a significant difference between the American and Chinese culture which is also prominent in the personal styles of the business professionals. The Chinese business culture mainly concentrates on the formal business communications file the American organisations generally focus on informal cultures. Based on the cultural differences in personal style Amazon is likely to face negative sources to operate its business in China.

Direct and indirect communication
As explained by Ramirez Marin (2019), the preferred communication styles of businesses can greatly differ on the basis of cultural background. It is identified that while some cultures provide value to direct and simple means of communication in business other cultures prioritise in methods of indirect and complex means of communication. In China, E-Commerce businesses depend on indirect styles of communication that make the use of body language, facial expressions and the use of the figure of speech. However, being an American organisation, Amazon business strategy prioritises on the usage of direct styles of communication that are carried out through straightforward ways.

Emotionalism
In comparison to the E-Commerce organisations based in China, the US-based company Amazon relies more on high emotionalism in business to make the business to business negotiations and communications. On the contrary, the organisations based in China display a low level of emotion during the business-to-business communications and negotiations. Therefore, Amazon business strategy in the Chinese market can face difficulty in making business to business negotiations with the suppliers and business partners based in China as well as to communicate with the customers based in China.

Team organisation
It has been identified that the organisations of the negotiations and communication teams in business organisations are greatly influenced by cultural values (Ahammad et al., 2016). These cultural values are also likely to impact on the process and power of decision making in business to business negotiations and communications. In the E-Commerce industry of China, the majority of the organisation depends on a large negotiating team and relationship management team to carry out the business to business negotiations and communications. However, Amazon is an American company that depends more on one person leadership in negotiations and business to business communications. Therefore, in carrying out the business to business negotiations in the Chinese market Amazon business strategy is more likely to face difficulty due to the lack of organised teams.

Conclusion and recommendations
From the above conducted study, it has been identified that the E-Commerce sector of China is a greater opportunity for expansion of Amazon business strategy in the domestic E-Commerce marketplace. From the analysis of the e-commerce market profile, growth rate, potential locations and statistics regarding the consumers the Amazon business strategy is suggested to expand its domestic e-Commerce marketplace into the Chinese market.

Recommendation 1: Amazon is recommended to establish its domestic E-Commerce phones at potential locations like Shanghai, Zhejiang, Jiangsu, and Guangdong.

Table.1: SMART recommendation
(Source: Created by the learner)

Recommendation 2: Amazon business strategy is recommended to focus on indirect ways of communications particularly enhancing the usage of body language, facial expression and the figure of speech in order to communicate effectively with the customers, suppliers and business partners based in China.

Table.2: SMART recommendation
(Source: Created by the learner)

Recommendation 3: Amazon business strategy is recommended to develop a highly organised team for conducting the business to business negotiations and communications apart from focusing on one person leadership.

Table.3: SMART recommendation
(Source: Created by the learner)

References
Ahammad, M.F., Tarba, S.Y., Liu, Y., Glaister, K.W. and Cooper, C.L., 2016. Exploring the factors influencing the negotiation process in cross-border M&A. International Business Review, 25(2), pp.445-457.

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Chen, Y., 2017, January. On the Study of Cross-cultural Assimilation in Business Negotiation. In 2016 2nd International Conference on Economics, Management Engineering and Education Technology (ICEMEET 2016). Atlantis Press.

Cui, M., Pan, S.L., Newell, S. and Cui, L., 2017. Strategy, resource orchestration and e-commerce enabled social innovation in Rural China. The Journal of Strategic Information Systems, 26(1), pp.3-21.

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Ramirez Marin, J., Olekalns, M. and Adair, W., 2019. Normatively speaking: Do cultural norms influence negotiation, conflict management, and communication?. Negotiation and Conflict Management Research, 12(2), pp.146-160.

Richardson, C. and Rammal, H.G., 2018. Religious belief and international business negotiations: Does faith influence negotiator behaviour?. International Business Review, 27(2), pp.401-409.

Statista. 2020. eCommerce - China | Statista Market Forecast. Available at: https://www.statista.com/outlook/243/117/ecommerce/china#market-globalRevenue [Accessed 1 Apr. 2020].

Xiaoqing, L., 2018, December. The Expansion of International Market of Foreign Trade Manufacturing Through Cross-border Electronic Commerce Under “Mobile Internet Plus”. In 4th International Conference on Economics, Management, Law and Education (EMLE 2018). Atlantis Press.

Yu, L. and Mishra, A., 2020. Customer Engagement Strategies of China's E-Commerce Industry and Their Impact on China's Economy Transition. Amazon business strategy In Impacts of Online Advertising on Business Performance (pp. 81-103). IGI Global