Strategic Entry Modes Used by Amazon, and Merits and Demerits of Resource Based View and Positioning Approach

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Introduction

Companies decide to internationalise for various reasons. These reasons include, search for lower operating costs, desire for more returns on investments, diversification of profit bases, to acquire new technology and skills among other reasons. In addition, once a company decides to internationalise, a thorough research is vital in order to formulate the best market entry strategy. Against this background, this essay will discuss the entry methods used by Amazon in its quest to internationalise, and how successful its strategies have been. In particular the essay will focus on three strategic entry modes which are; acquisition, green field investment and exporting. 

Strategic entry modes used by Amazon

Acquisition

Since its founding, Amazon had made a minimum of 83 acquisitions worldwide by the year 2018 (see table 1 below).

Table 1: Number of acquisition undertaken by Amazon from 1998-2018

Source: Author; Tuliman (2019)

Despite the fact that most of the acquisition by the company have been in the U.S, the company has used this strategy to enter into new markets abroad. To start with, in the U.K the company first acquired Bookpages and IMDb in 1998 marking its entry in the U.K. Moreover, on the same day it acquired the U.K firms, the company acquired Germany’s based Telebook (Hoeijiman, 2019). It can be claimed with certainty that the acquisition strategy has been successful in the two markets since in the U.K, for example, the company recorded revenues of £ 10.9 billion in 2018 and accounted for 90% of the country’s shoppers (Hoeijmans, 2019. Moreover, Amazon Germany made up of 27% of total e-commerce revenue in the country with gross revenue of € 10.25 billion (Hoeijiman, 2019).

Furthermore, for its entry into China, the company acquired Joyo.com in 2004 which in 2011 it rebranded as Amazon China (Tullman, 2019). Despite the success of this strategy in U.K and Germany, it has flopped in China where the country is dominated by home grown companies such as Alibaba and JD.com which together in 2018 accounted for 75% of retail online sales (Tuliman, 2019). According to Tullman (2019) Amazon made the same errors made by eBay when entering China, as it attempted to “copy paste” its U.S successful business model in China which has not been successful as the company continues to record losses. This assertion is in consonance with Hout and Michael (2014) submission that Amazon preferred globalisation and as such was not interested in giving autonomy to its Chinese operations.

Green field Investment

Kaur et al. (2017) explain that as a result of foreign direct investment barriers in retail sector in India, Amazon opted for green field investment strategy as a mode of entry in the country by launching Junglee.com in 2012. Despite the fact that customers could not transact on the platform, the platform aided Amazon to get insight into e-commerce market in the country and helped in building brand loyalty.

Apart from launching the platform, the company formulated new strategies for Indian sellers by launching Amazon Chai Cart in 2017. These carts moved around Indian cities spreading awareness among SMEs on the advantages of e-commerce. It is reported that the team engaged with more than 10,000 sellers in more than 30 cities. Further on, Amazon launched Amazon Taktal, an initiative that helped small Indian businesses get online and sell on Amazon in less than an hour. Starting with New Delhi, the team travelled more than 80 cities interacting with more than 150,000 small business owners (Sawhney, 2018).

According to Variyar (2018) a report by Barclays Plc indicated that Amazon India recorded sales worth $ 7.5 billion in the year ending March 2018, compared to its main competitor, Flipkart, which recorded sales valued at $ 6.2 billion. Further on, according to Amazon India C.E.O the report did not come as a surprise to the company since, as he argued, it was a reflection that their innovative strategies were bearing fruits. In addition, the C.E.O asserted that as at December 2018, the company had over 170 million items for sale (Variyar, 2018). Against this backdrop, it can be maintained that the green field investment strategy adopted by the company in India has been successful.      

Exporting

In Africa where there is lack of adequate payment systems to be used by e-commerce firms, where delivery logistics are a head ache due to poor infrastructure and lack of delivery addresses, Amazon has utilised exporting strategy as a means of entry in African countries (Uwagbale, 2020). In Nigeria, for example, buyers can buy certain products and Amazon can ship to them from its U.S store. However, this method has had its challenges. For example, the cost of shipping to Africa is sometimes equal or even more than the value of the product. This has resulted to African customers opting for forwarding companies which are often cheaper than Amazon (Uwagbale, 2020).

As a result of challenges discussed above, Amazon has not showed interest in setting an e-commerce platform in the country. This has led to Jumia, to dominate the African market and earning the title of “the Amazon of Africa” in the process (Uwagbale, 2020). As a result of this entry method having not been successful in Africa, some analyst contends that Amazon will have no other option but to take the promising African e–commerce market head on, by either acquisition or green field investments.

Conclusion

This essay has established that Amazon has utilised at least three strategic entry modes to internationalise. Firstly, the company acquired firms in U.K, Germany and China to enter these markets. The essay has highlighted that the strategy has been successful in European market but flopped in the Chinese market. Secondly, in India the company opted for green field investment which has succeeded in the country. Thirdly, in Africa where there are no viable payment option and where infrastructure is poor, the company has opted for exporting strategy which has not yet been successful.  

Section B: Option 1

Introduction  

Alberto et al. (2014) contend that for the last several decades, the Resource based view (RBV) has evolved to be a vital explanation of performance differences among organisations and as such has been heavily relied upon in strategic management field. Similarly, product positioning has evolved to be a vital element used by organisations in their marketing plan since when well undertaken it makes the marketing information resonate with customers and in the end makes them to buy an organisation’s product. Based on this background, this essay will discuss some merits and demerits of both RBV and product positioning. 

Merits of Resource Based View (RBV)

To start with, RBV aids in determining resources that an organisation possesses and relate them with the organisation capabilities. As such, it brings into account the profitability and value factor that are associated with the organisation (Albero et al., 2014). Further on, according to this theory, competitive advantage can be experienced by an organisation when it is able to use its resources in a valuable and unique way than its competitors. Relatedly, Almarria and Gardiner (2014) emphasize that RBV is useful as it identifies the basis by which resources owned by an organisation serve as its source of its competitive advantage. This view is buttressed by Kozlenkova et al. (2014) who elucidate that RBV states that ownership of strategic assets and their control are vital factors which separate organisations which have competitive advantages from those without.

Additionally, Kamasak (2017) explicate that RBV integrate tangible and intangible assets and as a consequence it creates a platform where an organisation’s management can understand their strength and therefore helps to improve the performance of an organisation. This view is echoed by Kenworthy and Verbeke (2015) who add that RBV offers direction for an organisation strategy as it perceives values derived from management skills as factors that can direct an organisation to achieve higher returns.        

Merits of positioning approach

Cristea (2014) postulates that good positioning approach provides the customer with information about a product in a way that it resonates their mind and as such, cementing the product in buyers awareness. Moreover, positioning creates more value as buyers will pay more for the product as they comprehend and agrees with the position of the product. This undertaking demands an organisation to advertise their product explaining to buyers the uniqueness of their product from those offered by other firms.

In addition, organisations can opt to create a brand by extending their position Florea et al., (2014). As a consequence, brands that consumers perceive as positive will command premium prices. In similar lines (Cristea, 2014) put forth that market position of products introduced by a parent company can be extended by brands. This becomes an advantage over companies that do not have brand position since new products which are not branded cannot on their own command a premium.

Furthermore, an organisation can use advertising to make category claims that its product is superior to those provided by other firms (Cristea, 2014). For example, a mobile phone battery advertisement could make a category claim that it runs out of charge less often than other batteries. As a result, category claims are vital in defining and strengthening the brand and product position. Similarly, if consumers perceive positive differences between a firm’s product position and product position of a firm’s competitors, the product will be differentiated. This makes a product to have a competitive advantage. Further on, consumers who by word of mouth pass information to others make category claims which in turn improve the product position. 

Demerits of Resource Based View

Like most theories applied in business, RBV has a number of demerits. For example, as a result of a broad definition of the term resources, it is problematic to determine the level of analysis that is needed to achieve competitive advantage as claimed by RBV (Kamasak, 2017). This concern is shared by Alberto et al. (2014) who posit that the lack of agreed upon definition of RBV terms has resulted to the use of varied definition of terms which has made it hard to compare results obtained from various studies.

In addition, Kozlenkova et al. (2014) hold that apart from resources, there are other factors responsible for organisations growth and performance. These factors include government’s regulatory policies, a country’s overall infrastructure among others. Further on, emerging technologies and market trends may have a detrimental effect on an organisation’s key resources.

Demerits of positioning approach

Despite the positioning approach having some major advantages, the strategy has some demerits. To start with, Cristea (2014) highlights that as a result of every organisation wanting to position its products in the minds of consumers there is often a high competition that makes it difficult for small and new companies to position their products. Moreover, stiff competition has made it hard for new companies to carve out a niche in markets dominated by established companies.

Additionally, it is always difficult to maintain a competitive advantage due to factors that are beyond a company’s control. For example, customers may for one reason or the other get tired of a company’s product which as a consequence may make a company to reinvent its image by offering a new product (Florea et al., 2014).  This becomes expensive since many resources are needed to reinvent a company’s image just as they are needed to foster a successful positioning approach.

Conclusion

This essay has highlighted some merits of RBV which includes aiding the management to understand their strength and limitations, and directing an organisation’s strategy. Additionally, some of its demerits such as luck of agreed upon definition of its terms which hinders its applications and not including other factors which affects performance. Furthermore, some merits of positioning approach such as cementing a product in buyers’ awareness and enhancing brand creation have been highlighted. Lastly, its demerits such as stiff competition hindering new firms to position their products, and the strategy being expensive have been discussed.

References

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