Amazon PESTEL/PESTLE Analysis, Recommendations Inc. PESTEL PESTLE Analysis, political economic sociocultural technological ecological legal external factors e-commerce case study
An Amazon Kindle. A PESTEL/PESTLE analysis of Inc. shows external factors that create opportunities for globally expanding the company’s online retail/e-commerce and IT service businesses. (Photo: Public Domain)

Amazon’s performance relates to the issues shown in this PESTEL/PESTLE analysis of the business and its remote or macro-environment. The PESTLE analysis model is a strategic management tool for identifying the external factors (political, economic, social/sociocultural, technological, ecological/environmental, and legal) that shape the conditions of the remote or macro-environment, which in this case is that of the e-commerce enterprise. Other markets or segments included in this external analysis of Amazon are cloud computing services, consumer electronics, and retail. As one of the largest players in the global market for information technologies and related online services, the company enjoys the benefits of extensive market reach, high capitalization, and high popularity. However, the online market is dynamic and continually presents new challenges for Amazon. Maintaining resilience and competence in addressing such challenges is essential to fulfilling Amazon’s mission statement and vision statement. Through tools like the PESTEL analysis model, the company’s decision makers can identify the most significant opportunities and threats based on external factors in the remote or macro-environment of the business.

This PESTEL/PESTLE analysis of Amazon reveals the significance of operations expansion into more markets to support the global growth of the e-commerce business. However, the company needs to address competition involving large and aggressive retail companies, like Walmart, as well as technology firms, like Google (Alphabet), Apple, and Microsoft, which compete with Amazon’s cloud services and related technological products. Still, as shown in this PESTEL analysis, the competitive landscape presents opportunities to continue growing Amazon’s operations, including those of subsidiaries, like Whole Foods Market, in various market segments.

Political Factors Affecting Amazon’s Technology and Services Business

Amazon operates alongside political influence. This aspect of the PESTLE analysis model focuses on governmental activity and its 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, especially the U.S.A. and European countries (opportunity)
  2. Governmental support for e-commerce (opportunity & threat)
  3. Increasing governmental efforts on cyber-security (opportunity)

Amazon benefits from political stability. In the PESTEL analysis framework, 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 operations in the United States to complement its e-commerce business. On the other hand, the external factor of overall governmental support for e-commerce is also an opportunity. Such governmental support facilitates Amazon’s continuing expansion in relevant markets. However, the same external factor threatens the company because of rising competition, such as that involving Chinese online retail firms that are expanding their operations. Nonetheless, governments present improved business conditions through efforts in fighting cybercrime. This aspect of the PESTEL analysis of Amazon shows major opportunities that the company can exploit to increase its resilience in the remote or macro-environment of the information technology services and e-commerce industry.

Economic Factors Important to Amazon

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

  1. Economic stability of developed markets, especially the U.S. and European countries (opportunity)
  2. Increasing disposable incomes in developing countries (opportunity)
  3. Potential economic recession of China (threat)

The economic stability of developed countries increases the likelihood of success for Amazon. Based on the PESTEL analysis model, this situation minimizes economic issues in the remote or macro-environment, thereby minimizing risks to the company’s online retail business expansion. Amazon also has growth opportunities in developing countries. For example, the increasing disposable incomes in developing markets can boost the company’s financial performance. However, the potential economic recession of China threatens Amazon’s business. The company currently offers a limited set of products, including cross-border sales, to Chinese customers. Based on the external factors in this aspect of the PESTEL analysis of Amazon, opportunities for growth in developing countries must be included in the company’s strategy formulation.

Social/Sociocultural Factors Influencing Amazon

Social conditions are a determinant of Amazon. This aspect of the PESTLE analysis model identifies the impact of sociocultural changes or trends on the company’s performance as a leading online retailer and provider of information technology goods and services. Considering such trends in the remote or macro-environment, Amazon faces 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 PESTEL analysis considers such a sociocultural trend a threat against Amazon in terms of the potential stagnation of disposable income levels and the corresponding stagnation of the remote or macro-environment of the industry. Higher disposable income levels are more favorable in increasing the e-commerce company’s potential revenues. In addition, an increasing degree of consumerism creates opportunities for growing the e-commerce and IT services business. For example, higher consumerism in developing markets increases the potential success of Amazon’s generic competitive strategy and intensive growth strategies, as the company looks to expand its global online retail operations in these locations. Also, the company stands to benefit from increasing online buying habits, as more people around the world prefer to buy products through the Internet. The external factors in this aspect of the PESTEL 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 business. The consequences of technologies and related trends on the remote or macro-environment are covered in this aspect of the PESTEL analysis of the e-commerce company. The technological external factors important in Amazon’s business are as follows:

  1. Rapid technological obsolescence (threat & opportunity)
  2. Increasing efficiencies of IT resources (opportunity)
  3. Increasing rates of cybercrime (threat)

Amazon faces the threat of rapid technological obsolescence, which imposes pressure on the company to continuously develop its technological assets. However, in the context of this PESTLE analysis, such a condition is also an opportunity in optimizing the business. For example, the corporation’s continued heavy investment in information technology can boost its competitive advantage and protect the 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 resource efficiencies. For instance, new computing technologies can maximize online retail productivity and minimize operational costs. However, the company also faces the constant threat of cybercrime. This external factor threatens the quality of customer 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 industry’s remote or macro-environment. Based on this aspect of the PESTLE analysis, Amazon needs to emphasize continuous improvement of its technologies.

Ecological/Environmental Factors

Even though Amazon is mainly an online business, its operations are subject to the influence of the natural environment. This aspect of the PESTEL 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. Such interest is a direct consequence of ecological challenges, such as waste management and energy consumption. Based on this external factor, an improvement in Amazon’s corporate social responsibility strategy could enhance the company’s environmental impact. Also, this PESTLE analysis notes major opportunities in the area of business sustainability. For example, higher sustainability standards can further improve environmental impact and strengthen the brand image of the e-commerce organization, based on the business strengths identified in the SWOT analysis of Amazon. Furthermore, the increasing popularity of low-carbon lifestyles provides opportunities for the company to boost its corporate image as a leader in the e-commerce industry. The company could implement extensive energy-saving policies in its operations for this purpose. This aspect of the PESTLE analysis of Amazon shows the significance of a comprehensive corporate social responsibility strategy to increase the company’s competence in addressing the ecological concerns its remote or macro-environment.

Legal Factors

Amazon’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 analysis model. In Amazon’s case, the following legal external factors are significant:

  1. Rising product regulation (opportunity)
  2. Changing import and export regulations (opportunity)
  3. Rising environmental protection regulations on businesses (opportunity)

Rising product regulation is seen as a result of societal demands on consumer safety and customer security. In the PESTLE analysis framework, this external factor creates opportunities for Amazon to intensify its efforts in reducing counterfeit merchandise on its online marketplace. Also, the company has opportunities to grow, based on the external factor of changing import and export regulations. For example, Amazon can expand its global operations to exploit the increasing ability of sellers to access overseas suppliers. Moreover, the e-commerce 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 PESTLE analysis model, Amazon can ensure long-term e-commerce success through regulatory compliance.

PESTLE/PESTEL Analysis of Amazon – Recommendations

Amazon remains the top player in the online retail market. The company has shown resilience despite increasing competition with companies, like Walmart. This PESTLE analysis of Amazon identifies key issues that are critical to the company’s long-term success. A recommendation is to expand the company’s operations into 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. These issues affect consumer confidence and the stability of the company’s remote or macro-environment. In addition, based on the external factors in this PESTLE analysis, it is recommended that Amazon boost its brand strength through a corporate social responsibility strategy that addresses current issues that link the business to the natural environment.