In today’s world, organisations are not only expanding within their native country but also in the global market. The primary driver behind the international expansion is the decrease in the trade barrier between two or more countries which is sometimes characterised as ‘globalisation.’ It is the process by virtue of which one organisation can interact with other business entities and formulate strategies and plans as per the requirement of the host market. According to Palan (2014), globalisation can be referred to the markets’ integration in the global economy that results in the improved interconnectedness of economies of nations. In laymen language, it is the force that improves the presence of any business entity at global level. In the following essay, the advantages and disadvantages of the process of globalisation for an e-commerce company “Amazon” are highlighted and discussed. In addition to this, the concept is thoroughly explained with the help of certain models and theories for better its understanding.
Amazon is the world’s biggest online retailing company that operates globally. The organisation is headquartered in Seattle, Washington and has diversified business from e-retailing to AI developer, cloud computing and digital steaming services. It is now the world’s second largest technology firm in terms of revenue. Started as an online retailer for books, at present, Amazon offers almost every product, such as electronics, apparel, furniture, software, food, jewellery, toys, video games, and much more. In the international market, Amazon is establishing itself by making use of strategies such as merger and acquisition. With its strong network of suppliers and logistics providers, Amazon’s revenues are increasing exponentially. The essay demonstrates the effect of globalisation on Amazon’s business strategies.
Talking about the advantages of globalisations for the ecommerce business organisations, first and foremost is that they get the access to the bigger markets where they can even experience massive demands for the products. The international market offers a larger consumer baseand therefore, business like Amazon can sell its best quality product and services to them and increase their revenue. In addition to this, ecommerce companies can reap the benefits from economies of scale that results in lowering of the average servicing or production cost (Kotabeand Kothari, 2016). In addition to this, globalisation provides organisation an access to a plethora of sources to get cheap material, labour, and other resources, thereby improving the cost competitiveness of the firms not only in the local but also in the international market. Once the organisation becomes capable to reduce its operating cost, it can increase not only its revenues but also the profits for the stockholders. Amazon has lowered down the transaction cost by making use information technology (Amazon, 2018). Having a better coordination with various finance partners and using internet-based transaction, it saves a lot of time and money of customers. It also encourages its service providers and trading partners to adopt online payment system to improve the ease of payment. This process of reducing cost by exploring sources for cheap resources from different part of the world is termed as “global sourcing.”
Hennart and Slangen(2015) mentioned that globalisation has increased the investments from the larger firms to the smaller ones. It has been seen that international giant firms are investing heavily in ecommerce firms and startups that are distinctive and has the potential to expand locally as well as internationally. This is beneficial not only for the small firms but also for the countries as their economies get better with such investments. Amazon has recently invested in the San Francisco-based company founded in 2015 named ‘Eero’ that produces mesh-capable routers (Amazon, 2018). This is beneficial for Amazon as it gets an opportunity to enter in the new market and explore its potential and gain long-term profits out of its initial investment.
Laufs and Schwens (2014) mentioned that globalisation has reduced or vanished the domestic monopolies of the local retailers by providing opportunities to international retailers to invest in the market and give tough competition to the local ones. This has many benefits from consumers’ perspective. The first one is that the local leaders will have to reduce the prices of their goods and services and second is they have to provide quality services and goods so as to remain competitive in the market (Laufs and Schwens, 2014). Amazon is providing almost every product at reasonable prices that are available in the brick and mortar stores and that too at a reasonable price which is lower than the traditional supermarket stores are offering. This is the prime reason for the rise of the e-retailing giant to rule the local as well as the global market.
Gill, et.al (2018) linked globalisation with the firms’ performance and benefits. The author argued that globalisation provides an open access to improve processes, technology, skills, new financial sources, and better options for future growth. All these factors offer a plethora of business opportunities for ecommerce firms. With a better technology and skills, not only the big firms but also the smaller ones can mark their presence in the local as well as in international market. Better technology and skills can help the firms in improving the organisational performance and efficiency. It can lower down its operating, manufacturing, and logistic costs, thereby getting a competitive advantage over the rival firms. Also, with the better financial sources provided by the international market, the firms can expand and penetrate the global market in a better way and earn the maximum profits. Amazon with its AI services and drone delivery services, is providing better services and timely deliveries (Amazon, 2018). This has increased the customer satisfaction in the global market. That ultimately leads to better revenue generation and customer loyalty.
Talking about the disadvantagesof globalisation,the first and foremost is that it increases the competition in the market as other firms from different nations are also investing in the same market. This may affect the market share of the ecommerce firms. For instance, Amazon’s competitors in Australia are Coles and Woolsworth as they have started trading from both online and offline platforms. Being the local leaders in the offline retailing domain, their shift towards online retailing would surely decrease the market share and profits of Amazon in Australia. The company has to bring something unique and cost-effective service that can provide a competitive advantage to it.
Laufs and Schwens (2014) outlined that entering into a new market by virtue of globalisation would bring cultural issues to the firm. The global market is totally different and unexplored for most of the firms. It is important for the company to understand the political, social, and demographical factors. These might hinder the company’s growth and reduce the efficiency in every aspect. Failing in exploring the culture of the host country may be a catastrophic situation for the firm and it may lose its reputation, customers, and revenue as well.
Raff, et.al(2012) highlighted that businesses that have invested in the global market are over-standardising their products and services with the help of global branding. This is usually done to create a global monopoly. For instance, Windows Operating System by Microsoft is used by the majority of laptops and computers. This standardisation has benefited the company tremendously but it has also resulted in lack of product diversity and vanishes the chances for the local as well as entry level firms to business in their own country. Amazon is also doing the same by improving its technology and putting immense money in product and service development, it is killing the local retailers. The major issue with the ecommerce entering into a new market by virtue of globalisation is that it may suffer diseconomies of scale, such as poor coordination among different operation and departments operating in two different locations. This may cost a huge fortune to the firm.
Hollender, et.al, (2017) outlined one of the significant aspect of business that both local and international organisation should take care of i.e., legal and regulatory framework. Different countries have different policies for businesses. These include labour laws, health and safety, equality law, Data Protection law, Environment Protection laws, etc. All these policies and legislations impact organisational strategies and policies. This may sometime increase the operating cost of the international firms. Therefore, globalisation poses one of the significant challenges for the business entering the international market.
Baena and Cerviño(2015) applied porter’s theoryto online trading firms. The authors argued that the effect of globalisation on e-commerce firms varies across different stages of value chain of the industry. They mentioned that the purchase of B2B inputs are becoming globalised while the B2C outputs (purchase of goods and services by end users) are remained localised. In other words, the author argued that B2C online retailing firms are not directly benefiting from globalisation. On the other hand, the B2B firms are more affected by the process of globalisation. Ultimately, they argue that for B2C firms, globalisation is not the driving force but can provide an opportunity to the firms to increase the local competitive advantage.
As per the views given by Pradella (2014), organisation aiming at entering into the international market can make use of certain theories of globalisation in order to improvise the strategies and business plans as per the requirement of host market. The theory of Marxism is one such theory that provide an alternative social transformation view through social issues and class relation. The jests of this theory is that business should analyse different classes in the potential market and their demands. The theory is well-applied by McDonald’s while entering into various markets. McDonalds observed and analysed the demands in the market and social classes that helped it in expanding its businesses in the international market (Pradella, 2014).
Palan (2014) gave an overview on thetheory of constructivism and its linkage with the globalisation. The theory emphasises on socio-psychological factors to be considered while carrying out business planning. In today’s time, consumers are educated and want more information about the products and services. Their satisfaction is constructed on the understanding they develop and experience they gain. Hence, it is important for the firms to provide more and more information about their products and services so to capture a significant segment of the market share (Palan, 2014).
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