Amazon.com Inc. PESTEL/PESTLE Analysis, Recommendations

Amazon.com Inc. PESTEL PESTLE Analysis, political economic sociocultural technological ecological legal external factors e-commerce case study
An Amazon Kindle. A PESTEL/PESTLE analysis of Amazon.com Inc. shows opportunities for global expansion of the online retail business. (Photo: Public Domain)

Amazon.com Inc. effectively covers the issues shown in the PESTEL/PESTLE analysis of its e-commerce business and remote or macro-environment. The PESTEL/PESTLE Analysis model is a tool for identifying the external factors that shape the conditions of a company’s remote or macro-environment. In the case of Amazon, the conditions of the online retail market are considered. As the largest firm in the market, the company enjoys the benefits of high revenues and a popular set of online services. However, the online retail market is dynamic, creating new challenges for Amazon over time. It is essential for the company to maintain resilience and competence in addressing such challenges. Through a tool like the PESTEL/PESTLE Analysis model, Amazon can identify the most significant opportunities and threats based on external factors in its remote or macro-environment.

A PESTEL/PESTLE analysis of Amazon.com Inc. reveals the significance of online retail expansion in developing markets to support global business growth. Also, it is essential to ensure security and integrity of Amazon’s information technology assets to optimize user experience.

Political Factors Affecting Amazon’s E-Commerce Business

Amazon.com Inc. operates alongside political influence. This aspect of the PESTEL/PESTLE Analysis model focuses on governmental activity and effects on businesses and their remote or macro-environment. In Amazon’s case, the following political external factors are important in the development of the e-commerce industry:

  1. Political stability of developed countries (opportunity)
  2. Governmental support for e-commerce (opportunity & threat)
  3. Increasing governmental efforts on cyber-security (opportunity)

Amazon benefits from political stability. This condition creates an opportunity for the company to expand or diversify its business in developed countries. For example, Amazon could expand its brick-and-mortar bookstore operations in the United States to complement its e-commerce business. On the other hand, overall governmental support for e-commerce is also an opportunity. Amazon could continue expanding in markets with such governmental support. However, this external factor also threatens the company because of rising competition. For example, with governmental support, Chinese online retail firms are expanding their operations. Nonetheless, governments present improved business conditions through efforts in fighting cybercrime. This aspect of the PESTEL/PESTLE analysis of Amazon shows major opportunities that the company should exploit to increase its resilience in the remote or macro-environment of the e-commerce industry.

Economic Factors Important to Amazon.com Inc.

Amazon’s performance depends on the situation of the economies where it operates its online retail business. The effects of economic trends and changes on the remote or macro-environment are considered in this aspect of the PESTEL/PESTLE Analysis model. In the case of Amazon.com Inc., the following economic external factors are significant:

  1. Economic stability of most developed markets (opportunity)
  2. Increasing disposable income in developing countries (opportunity)
  3. Potential economic recession of China (threat)

The economic stability of most developed countries increases the likelihood of success for Amazon.com Inc. in these markets. Such a condition minimizes economic issues in the remote or macro-environment, thereby minimizing risks to the company’s online retail business expansion. Amazon has other growth opportunities in developing countries. For example, the increasing disposable income in developing markets could boost the company’s financial performance. However, the potential economic recession of China threatens Amazon’s business. The Chinese market is one of the biggest markets that the company hopes to increasingly penetrate. Based on the external factors in this aspect of the PESTEL/PESTLE analysis of Amazon.com Inc., opportunities for growth in developing countries must be included in strategy formulation.

Social/Sociocultural Factors Influencing Amazon

Social conditions determine Amazon.com Inc.’s performance as a leading online retailer. This aspect of the PESTEL/PESTLE Analysis model identifies the impact of sociocultural changes or trends on the firm’s remote or macro-environment. Amazon must consider the following sociocultural external factors:

  1. Increasing wealth disparity (threat)
  2. Increasing consumerism in developing countries (opportunity)
  3. Increasing online buying habits (opportunity)

The increasing wealth disparity refers to the increasing gap between the rich and the poor in many countries. This condition threatens Amazon.com Inc. in terms of the potential stagnation of disposable income levels and the corresponding stagnation of the remote or macro-environment of online retail business. A higher disposal income level is more favorable in increasing potential revenues of the e-commerce company. Nonetheless, an increasing degree of consumerism creates opportunities for Amazon. For example, higher consumerism in developing markets increases Amazon’s growth potential as the company looks to expand its global online retail operations in these locations. In relation, the company stands to benefit from increasing online buying habits, as more people around the world gain access to the Internet. The external factors in this aspect of the PESTEL/PESTLE analysis of Amazon indicate the benefits of focusing on market penetration and expansion in developing countries.

Technological Factors in Amazon’s Business

Technological advancement directly affects Amazon, considering the centrality of technology in its e-commerce business. The consequences of technologies and related trends on the remote or macro-environment are covered in this aspect of the PESTEL/PESTLE Analysis model. The technological external factors important in Amazon.com Inc.’s business are as follows:

  1. Rapid technological obsolescence (threat & opportunity)
  2. Increasing IT efficiency (opportunity)
  3. Increasing cybercrime (threat)

Amazon.com Inc. faces the threat of rapid technological obsolescence, which imposes pressure on the company to continuously develop its technological assets. However, this condition is also an opportunity in optimizing the business. For example, the firm’s continued heavy investment in information technology could boost its competitive advantage and protect its business from new entrants in the e-commerce industry. Amazon also has opportunities to further improve its performance based on the rapid increase of IT efficiency. For instance, new technologies can maximize online retail productivity and minimize operational costs. However, the company also faces the constant threat of cybercrime. This external factor threatens consumer experience as well as the integrity of Amazon’s business. Thus, significant investment in appropriate technological measures is critical to the company’s long-term survival despite technology-related issues in the firm’s remote or macro-environment. Based on this aspect of the PESTEL/PESTLE Analysis, Amazon needs to emphasize continuous improvement of its technologies.

Ecological/Environmental Factors

Even though Amazon.com Inc. is mainly an online retail business, its operations are subject to the influence of the conditions of the natural environment. This aspect of the PESTEL/PESTLE Analysis model presents how the company’s remote or macro-environment relates with ecological changes. Amazon considers the following ecological external factors in its strategic formulation:

  1. Rising interest in environmental programs (opportunity)
  2. Rising emphasis on business sustainability (opportunity)
  3. Increasing popularity of low-carbon lifestyles (opportunity)

Amazon has opportunities to improve its environmental impact in response to the rising interest in environmental programs. For example, based on this external factor, an improvement in Amazon’s corporate social responsibility strategy could significantly contribute to satisfying such interest. In relation, there are major opportunities in business sustainability. For instance, the company could implement higher sustainability standards to further enhance its strong brand image as an e-commerce organization [Read: SWOT Analysis of Amazon]. Moreover, the increasing popularity of low-carbon lifestyles provides opportunities for Amazon.com Inc. to boost its corporate image. The company could implement extensive energy-saving policies in its operations for this purpose. This aspect of the PESTEL/PESTLE analysis of Amazon shows the significance of a comprehensive corporate social responsibility strategy to increase the company’s competence in its remote or macro-environment.

Legal Factors

Amazon.com Inc.’s e-commerce operations must adhere to legal requirements. The effects of regulations on the remote or macro-environment are determined in this aspect of the PESTEL/PESTLE Analysis model. In Amazon’s case, the following legal external factors are significant:

  1. Rising product regulation (opportunity)
  2. Easing of import and export regulations (opportunity)
  3. Rising environmental protection regulations (opportunity)

Rising product regulation is seen as a result of societal demands on business organizations. This external factor creates opportunities for Amazon.com Inc. to intensify its efforts in reducing counterfeit sale on its online retail website. Also, the company has opportunities to grow, based on the external factor of easing import and export regulations. For example, Amazon can expand its global operations to exploit the increasing ability of sellers to access overseas supplies. Moreover, the company has opportunities to strengthen its brand image through appropriate corporate social responsibility policies that address rising environmental protection regulations. Such effort can increase business competitiveness in the remote or macro-environment. Based on this aspect of the PESTEL/PESTLE Analysis model, Amazon can ensure long-term e-commerce success through regulatory compliance.

Amazon’s PESTEL/PESTLE Analysis – Recommendations

Amazon.com Inc. remains the top player in the online retail market. The company has shown resilience despite increasing competition with companies like Walmart [Read: PESTEL/PESTLE Analysis of Walmart]. This PESTEL/PESTLE Analysis of Amazon identifies key issues that are critical to the company’s long-term success. A recommendation is for the company to expand its operations in developing markets, which present rapid economic development and high e-commerce growth potential. Also, the company must address IT security issues by continuing and enhancing its current strategies for IT security and integrity. Such issues affect consumer confidence and the stability of the firm’s remote or macro-environment. In addition, based on the external factors in this PESTEL/PESTLE analysis, it is recommended that Amazon must boost its brand strength through a corporate social responsibility strategy that addresses current issues linking business and the natural environment.

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