Managing Risks in Amazon's Expansion: A Focus on Internal and External Challenges - Free Paper

All companies face different types of risks irrespective of whether they are small or large. These threats and risks may negatively affect the performance of a company. Compared to small companies/businesses, large companies encounter more risks and threats. According to Beers (2020), a business risk can be described as a term that incorporates all the circumstances, situations, and factors that affect the income and operational performance of a company. Risks not only affect the financial performance of a company but also hinder the ability of the company to offer stakeholders and investors their expected returns (Beers, 2020). Nonetheless, there are several ways that a company can lower its risks by identifying external and internal risks.

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Internal risks are risks and threats that affect the company’s performance from within the company while external risks are forces from the outside that affect a company’s performance. Irrespective of the type of risks (internal or external), a company has to plan for these risks and develop ways of dealing with them.

Amazon is an international company and therefore faces several challenges and risks. Amazon faces both internal and external risks, for example, regulations, laws, and business rules that the company has to adhere to. These laws and regulations may be local, state, or federal laws. Amazon has to conform to all the rules and regulations of the countries where they operate.

Just as a company faces different risks, any project that a company invests in will also face different risks. Amazon’s investment in India will face several risks but the yields will be greater than the risks. RBC (2020) believed that Amazon stands to gain about $18 billion in revenue from India. RBC (2020) added that by 2023, it is expected that India could account for more than 13% of the total international sales of Amazon. Projections also show that by 2023, India will account for 4% of Amazon’s total revenue.

According to RBC (2020), about 30% of India’s e-commerce is controlled by Amazon while Walmart controls about 44% of India’s market share. According to Strauss (2019), Amazon’s expansion in India is expected to grow and its market share will increase to 35%. Although there are many benefits, there are several risks that will be encountered. It is therefore important for Amazon to plan on how these risks will be dealt with and get good returns from their investment.

Internal Risks

There are several internal risks that Amazon will face while expanding in India. These include strategy and workforce risks. Regarding the workforce, just like any other large company, Amazon’s management wants the best and most qualified personnel working for them. The workforce is essential in helping Amazon achieve its business and strategic goals. Poor employees increase the operational expenses of the company, making it incur more costs thus reducing the turnover, and the company also wastes time and resources in employing and training other employees.

In almost all countries, the labor market is constantly evolving and companies need to be aware of all the changes. Currently, the whole world is facing the COVID-19 pandemic and as such, companies need to protect the health and well-being of their employees all the time. Amazon employs thousands of workers and it needs to provide these workers with personal protective equipment (PPE) so that they can do their jobs efficiently and in a safe environment. PPEs are expensive but if one employee gets infected, he/she would end up affecting other workers and the whole company could be adversely affected.

Additionally, because of COVID-19, there is a labor shortage that will increase the risks of the project not expanding. Amazon needs to attract the most qualified employees who will help the company achieve its goals. Through providing PPEs, offering sick leaves, and taking care of the health and well-being of its employees, Amazon will manage COVID-19 risks and help workers feel safe when working. Good working conditions attract top talents and retain them thus pushing the company forward.

Internal Opportunities

Technological advancements affect e-commerce companies significantly. Fortunately for Amazon, it has many innovative and technological strengths. Amazon has capitalized on these two main factors (innovation and technology) to expand throughout the whole world. Therefore, the main internal opportunities for Amazon’s growth in India are innovation and technology.

Some of the innovative technologies that Amazon can adopt include big data analytics (this is a technology that can track how consumers spend and where the sales are happening). Big data analytics also helps in tracking products that are poorly performing and those that are performing well. A company can, therefore, know where it should concentrate its efforts and resources. Amazon traces its performance using big data analytics and this has enabled the company to be hugely successful in expanding its projects.

Big data analytics will be vital in helping Amazon expand in India. By using big data analytics results, Amazon can develop an effective strategy. Through those results, Amazon can determine where it needs to invest in advertising and marketing. Moreover, the results will provide insight into the performance of Amazon in India. Amazon will know the products that are most demanded and the ones that have the least demand. Big data analytics will provide Amazon with a competitive edge over its competitors.

External Risks

Amazon’s expansion in India will face many external risks. Some of these risks include regulation, cyber-crime (hackers), and policymakers. Cybercrime is one of the most prevalent risks and threats that affect e-commerce companies. According to Greenspan (2017), Amazon faces cybercrime threats and it not only threatens the integrity of the company but also the consumer experience. Hackers can retrieve the personal information of customers and can also steal credit card information. Identity theft has made it difficult for many consumers to fully embrace e-commerce.

Amazon will need a lot of resources and finances to deal with its cybersecurity. Nowadays, hackers have become more innovative and use the current technology to hack into systems and steal information. Hackers have adapted to technologies and have become more creative in how they steal consumer data. Amazon has an e-commerce model and is, therefore, prone to cyber-crime and cyber-attacks.

According to Ttaulli (2018), although the highest vulnerability lies in the e-commerce core model, it is not the only one that can be targeted by hackers. Amazon has an Amazon web services (AWS) platform that is used by many companies in managing their applications and data. Therefore, if a company’s AWS is breached by hackers, Amazon’s stock will be negatively affected thus affecting its revenue and profits (Ttaulli, 2018).

Several regulations and laws may pose risks for a company. Amazon has expanded in many countries throughout the world and it is not only affected by local, federal, and state laws but also by the laws of the countries where they operate. Amazon has to ensure that it complies with and abides by all the laws and regulations of the respective countries. Some of the laws that can affect Amazon include employment and tax laws.

Amazon will employ thousands of workers to work in their distribution centers and warehouses. Consequently, it will have to comply with all Indian employment laws. According to Hu (2019), India introduced several laws that could affect Amazon negatively. Online vendors are not allowed to sell their items using vendors with whom they have an equity stake. Moreover, online sellers are not allowed to sell exclusively using their corresponding platforms. Hu (2019) argues that all these laws are detrimental to Amazon since it sells its items through vendors with whom they have a stake. Amazon also sells almost 50% of its products through its website. India’s laws prohibit retailers from selling exclusively through their platforms.

Governments also pose an external risk to companies. The government can affect the performance of a company negatively or positively depending on how the government views that particular company. A perfect example is when President Trump criticized Amazon and since then more countries have started to investigate Amazon’s practices. According to Spangler (2018), Trump criticized Amazon and even threatened to take punitive actions against the company. Trump accused the company of not paying enough taxes, being a monopoly, and leaching money from the U.S.A. postal system.

Amazon can also be affected by foreign governments. The cybersecurity regulations and rules drafted by a country, the political stability of a nation, and the support that a government provides to international companies affect the general performance of such companies. Other governments are also against distribution and expansion, for example, in China, the government has made it hard for Amazon to conduct its activities easily. According to Frue (2018), Amazon pays a lot of taxes to operate in China.

Additionally, many countries feel Amazon destroys small retailers and ends up becoming a monopoly. According to Siegel (2019), the policymakers of many Asian countries (such as India) have accused several companies (including Amazon) of dominating the digital industry and forcing small businesses out of the industry.

Disagreements between different governments can also prevent Amazon from expanding. In the last few years, China has been feuding with the U.S.A. China has been increasing its tariffs and they negatively affect the ability of Amazon to operate in China. Amazon is subjected to tariffs and is influenced negatively by trade wars between governments. If the U.S.A. started feuding with India, Amazon’s expansion would be affected.

According to Beers (2020), it is difficult for a company to foresee all external risks that it will face. A company can insure itself against such external risks and uncontrollable factors such as wars, trade embargoes, and other political events among many other types of risks. It is also important for Amazon to be aware of how a government operates before investing in that country and to be up to date with new rules and regulations.

Microeconomic

One of the factors that affect the performance of a company is the economy. If a country’s economy is stable and strong, a business will flourish. According to Frue (2018), a good economy will mean people are employed and have higher disposable income. Therefore, people will have money to spend on items such as clothes and electronics (all these are available on Amazon).

A strong economy presents several risks as well. When unemployment levels are low, the company will struggle to attract new employees. Moreover, the cost of labor will also be high. If Amazon does not employ enough personnel, operations will be run slowly and this will affect customer satisfaction. Customers will become frustrated and turn to competitors.

A poor economy presents several risks as well. When the economy is poor, people will not have enough disposable income. They will not have much to spend on luxuries and, therefore, Amazon’s sales will be much lower. According to Beers (2020), the best way of responding and dealing with economic risks is through reducing costs and expenses and ensuring the client base is diversified. Therefore, the revenue will not depend on a particular area or a particular group.