Amazon Inc. expansion to Brazil.
In an increasingly globalized and connected world, companies that pursue businesses beyond their local boundaries significantly increase their value. With new markets emerging, opportunities for growth are brought forth. This comes with likelihoods for diversification and innovation while gaining local insights and knowledge for companies that look to expand in to these new markets. Amazon, just like many other companies are looking to expand their services to emerging markets and especially developing countries such as Brazil, Russia, India and China.
The e-commerce powerhouse named after Brazil’s longest river wants to elbow its way into the Latin America’s largest market economy with their popular products such as kindle e-reader and the new Portuguese language catalogue of digital books according to book publishers in Brazil. The company looked into expanding to the Latin America in 2013 but they stalled their plans due to stringent government policies on foreign businesses concerning tax difficulties and logistics issues. Amazon.com Inc. is expected to set up a digital bookstore in the fourth quarter of the year as it seeks to get a share of the fast growing online retail market in the country.
The company’s management believe that their products led by Kindle could quickly dominate Brazil’s e-market therefore boosting their electronic sales by 25%. The company has already involved some Brazilian publishers in negotiations and pans for book pricing at about 75% of their cover prices and earn a profit margin of about 45%. This essay aims to discuss the policies and strategies of Amazon. Com Inc. that should be embraced and those that need changes for this internationalization process as well as the challenges likely to be faced and finally giving recommendations for smooth entry in to the Brazilian market.
TABLE OF CONTENTS.
Amazon.com policies and strategies………………………..…………………3.
Obstacles faced and solutions………………………..………………………….6
Policies and strategies.
The Brazilian economy has grown consistently in the past year and the amount of potential customers is constantly increasing with increase in the middle class population. Poverty in the country has dropped from 34% to 12.7% in the past two years (Ronald Berger Strategy Consultants, 2011). E-commerce in Latin America is rapidly expanding the market and the e –marketer estimates in 2017 will be 72 million consumers browsing for products and services over the digital platform.
Some of the strategies will work for the benefit of the company while others have to be slightly changed before application in the new market. One strategy that has always been successful and should be embraced is the strategy to relentlessly focus on the customer experience by offering low prices, convenience and selection merchandise. To achieve customer loyalty and repeat purchases, all customer needs have to be satisfied. The easy to use to use functionality, fast and reliable fulfillment, timely customer service, feature rich content and transaction environment have been the key ways of earning customer loyalty in Amazon.com Inc. Amazon.com communicates the fulfillment of promise in several ways such as presentation of latest inventory availability information, delivery dates estimates and options for expedited delivery as well as update facilities. Furthermore, encouraging customers to join loyalty programs such as the Amazon Prime where members receive free or discounted express shipping will be an advantage in winning customer loyalty. If this is upheld in the new market, amazon.com will increase its market share and increase profits as a result.
Secondly, product differentiation is a key strategy to be embraced when entering into the Brazilian market. This differentiation strategy is where a product or service offered by the company is perceived to be of higher or superior customer value and has a definite price premium. Product differentiation and diversification through innovative techniques will the organization a competitive advantage in the market. This can be made better by acquisition of new products such as work out clothing and gym equipment that are lacking in the Brazil market. This strategy is focused on coast leadership where the prices on products are lower than that of the competitors. This gives the company an edge compared to its competitors already established in the market. Additionally, Amazon.com Inc., marketing strategy is designed to strengthen the company’s brand name and increase customer traffic in their website. The company uses technology creatively to create value for its customers through flexible merchandising. The technology used by the company however does not promote immediate cultural experimentation such as payment methods to be used in new markets. The continuous improvement of the company’s website as a way to improve the customer interaction should also be adopted in the new market. This will make it easier for the new customers in a country with low technological advancements to make purchases without straining to understand the website concepts.
As a part of the internationalization process, the company has to consider its market entry strategy. Amazon. Com is known to be a stand -alone entry in all its international markets such as in France and England. The company perceives itself as having adequate capability in taking capital risk and being ready to gain knowledge associated with new comers over time. This strategy will however not work in Brazil due to government policies regarding foreign companies. The government of Brazil requires that foreign businesses partner with locals in order to give the local businesses a competitive advantage.
Finally, understanding the international context is another major strategy that the company should adopt. Brazil has differing cultural online practices compared to the American market. Brazil market tends to buy more of electronics, music and mobile phones and not books as in the American markets. Amazon.com therefore needs to carry out an intense research on culture, differentiation and responsiveness.
Despite the positive market outlook for Amazon in Brazil, there needs to be some changes in strategies to ensure successful entry into the new market. Amazon.com Inc., faces stiff competition from other online shops that have already set base in Brazil such as EBay, Livraria Cultura and other local stores that have numerous locations in the country. Publishers complain that revenues offered by amazon.com are insignificant compared to what they receive from other online stores. From this, it is clear that Amazon.com needs to find new strategies to deal with competition such as offering publishers a platform to market their books outside the borders of Brazil something which the competitors do not offer.
Secondly, advertisement as a marketing strategy has to be changed before adoption. In other international markets, Amazon.com uses email advertisements and television adverts to market themselves and well as billboards and other web sites. This strategy will however not work for the Brazilian market. Unlike the American population who are known to be personal and use main stay emails, the people of Brazil are more social therefore communication should be face to face as much as possible. Brazilians put a higher value on personal relationships that develop in person communication. This will therefore require the organization to develop an advertisement strategy that uses sales people more to spread world concerning the business products and services. Online negotiations will also have to be changed to physical meetings and planning more activities on a face to face basis in order to ward off competition and raise their market share. Local relationships have to be developed when entering this market since the country’s business culture relies heavily on personal relationships (Exoprt.gov, 2014)
Additionally, the organization has to change its payment policy on use of credit cards. The rise in the middle class population has increased the market for Amazon.com products but it has not adopted technological ways of money transfer and payment. The company should create a new policy that enables the consumer to pay for the goods ordered upon delivery unlike in America and European countries where goods are paid for online using credit cards. The shipping strategies would have to be changed since finding a local importer has been proven to be more costly than setting up a retail store in Brazil. free shipping of products to the clients from headquarters to the Latin American market attracts high taxes that end up increasing the cost of the product and consequently discouraging consumers from making purchases.
Finally, the value chain strategy has to be changed for a smooth entry in to the Brazilian market. Value chain describes all functional activities of the organization that are responsible for profits or losses of the company. The value chain strategy is divide into the production, organizational and financial strategies. The organizational strategy is what will need to be changed in the entry to Latin America Brazil. The handling of staff decisions shall not be the same as to those in United States and European markets. The company strives to provide a satisfying job environment, fair compensation and appropriate work schedules. This is achieved through deployment of staff. For Brazil, the government policy in foreign businesses is to employ the local citizens. This will require Amazon.com Inc., to train the locals on how to handle their jobs and attend to customer needs. Training the personnel will give the company a competitive advantage since it focuses on specialization and skilled labor and efficiency.
OBSTACLES FACED AND SOLUTIONS.
Amazon.com Inc., faces challenges in its strategies and implementation in Brazil. Brazil has a diversified market that requires the company to have intimate knowledge of the local environment including both the direct and the indirect costs of doing business in Brazil. The company is very careful in selecting companies and partners to go into business with. Brazil is known for corruption and bureaucracy. It is difficult for foreign companies to set up shop in this country. Brazil was ranked 126th of 183 countries in the World Bank’s annual report which evaluates the ease of starting a business, registry of property and payment of taxes. This makes it difficult for Amazon.com to engage in cross border collaboration and forces the company to employ the services of local citizens who are less innovative compared to the company’s trained personnel. To overcome this, the company needs to understand the country’s business culture and social etiquette in order to avoid misunderstandings. Furthermore, the company should get into partnerships with local companies with shared corporate culture and values with sufficient financial and human resources that would enable them to employ skilled labor to improve innovation of new products and ways to sell existing products and cut the costs of training the new personnel. Having a diverse set of employees could also be used as a technique to overcome this challenge. Having a team from different parts of the countries in collaboration with the workforce in the United States will improve the relations between the company’s personnel and encourage innovation. This will also go a long way in fostering a good relationship with the government of Brazil and prevent misunderstandings that could scuttle deals and harm working conditions.
Secondly, the Amazon.com Inc., company faces an obstacle in finding a reliable real estate partner who can provide adequate rental space for the distribution warehouses at a convenient rent. The Amazon.com Inc., products are diverse and voluminous therefore require a wide space for storage and retail shop. This space should have a rental value that would not interfere with the prime prices of the diverse products on sale. The rental costs in Brazil are very high due to government policies on land ownership and property leasing. This can be rectified by the company through purchase of already constructed warehouses from locals in a prime location where accessibility and infrastructure is not compromised. To penetrate the Brazilian market, the company has to have efficient distribution chain and logistics. Superior customs clearance, warehousing and transportation capabilities presents Amazon.com Inc., with competitive advantages and drivers of brand in Brazil since distribution is one of the biggest challenges in the rapid economic growth experienced in Brazil (Berners Consulting, 2013).
Businesses will face many challenges and obstacles when the focus in is in international market; Amazon.com is not an exceptional. If the adaptations of the correct strategies are made and changes implemented, the company is highly likely to succeed in the Latin America Brazil market. Narrowing down the strategic imperatives of how to expand internationally, understanding the international context and developing transnational strategies, creating worldwide innovation and learning and engaging in cross- border collaborations will go a long way in determining the success of Amazon.com Inc., in the new market. All these changes and adaptations are compatible with the company’s mission which is to be the earth’s most customer centric company; to build a place where people can come to find and discover anything.
With this in mind, I advise the chief executive officer and the board of managers of the company- Amazon.com Inc., to continue with the expansion plans into the emerging Brazilian market. The vision of amazon.com Inc., to expand into the Latin American market in Brazil will enable the company to expand its international operations. The vast population of the country presents an exciting opportunity with potential of becoming the largest market in South America. Amazon.com has strategically enhanced its business operations through expanding its business areas to different products. The broad product portfolio will serve as a diversified customer base. The fact that Amazon.com owns its own publishing division is a plus when entering this market. Amazon Kindle Direct Publishing will offer independent publishers and authors a platform to offer their work to the desired target market. the company’s return policy will encourage the buyers to trust the organization which therefore expands the market share of Amazon.com Inc. (Purnell, 2013). Furthermore, the benefits of expanding business to Brazil outweighs the cost of operation.
The Amazon.com Company that started as a purely online book store has since expanded rapidly to markets outside America and has diversified its range of products to electronics, kids clothing, shoes and mobile phones. The internationalization process to Brazil is one of the near future plans of the organization. For this process to take place successfully, the company has to adopt some of its current strategies and policies and others have to be changed before exploring this market.
Some strategies to be adopted are to have customer obsession and derive loyalty from customers through satisfaction of their needs and adoption of their return policy. changes In the advertisement through emails and television as a marketing strategy has be changed into word of mouth in order to reach a wider population. The changes and adaptation of the strategies and policies are in line with the company’s mission. The company is likely to face obstacles with the country’s foreign policies on businesses and an obstacle in cross border collaboration and organizational challenges.
Amazon.com Inc., has positioned itself as a low cost alternative to brick and mortar companies which sell the same products (Purnell, 2013). Overall, Amazon.com operates in a strong corporation that is growing in the industry. The company has a great potential in initiating promising strategic and corporate goals. To expand internationally, the company needs to review its international market strategies and adapt some of its existing strategies. For long term success, amazon.com needs to take its international products and customize them into the local requirements of the consumers. The company’s system of corporate learning does not give enough information for the company’s strategic managers to make the appropriate strategies and ways to enter into a new international market with minimum entry costs and maximizing profits potentials. The recommendations given are aimed at improving the company’s internationalization.
Joint venture in Brazil.
To make market penetration easier, a joint venture is a practical option for Amazon.com. The key requirement for this is to assess the best partner and strict guidelines on how to manage the relationship (Harringan, 1986). Joint ventures are less risky than acquisitions which is currently used by the company. The joint venture will ease the burden on government policies on foreign businesses and lower the tax to be paid to the government. This will improve the company’s profit and also allows local stores managers to give ideas on local customer needs.
Capabilities in Brazilian market.
As the ecommerce market in Brazil is emerging, Amazon.com can make the most out of it not taking over market share from other ecommerce companies. Instead, Amazon.com Inc., should develop its own capabilities. These business capabilities include local knowledge, local relationships in Brazil and efficient distribution system chain and logistics in the new market. Success in Brazil’s business culture relies heavily upon the development of strong personal relationships as the keystone business partnerships (Export. Gov., 2014)
Invest in local Brazilian partner.
It is difficult for United States companies to get involved in the public sector procurement at the federal state without a Brazilian partner or a physical presence in the country. Brazil is known for its large bureaucracy, complex regulations and tax codes, restrictive labor laws, import taxes and protectionism. Before setting up a retail shop in Brazil, it is wise for the company to invest in a worthy partner who will be able to reduce the operating costs for amazon.com since he/she is a local therefore the laws do not apply on them.
Personalized customer experience.
According to research, retailers are increasingly being challenged to deliver personalized customer experience online (Delloite, Fifth annual ecommerce assessment, 2014). This can be embraced by Amazon.com Inc., as a strategy in order to attract traffic to the company’s website. In 2013, Deloitte saw that while the majority of retailers surveyed offered personalized home page greetings, they struggled to deliver a truly personalized experience online. Amazon.com mission is to ensure that the customer’s needs are met and that the consumer is comfortable while using the website. To improve on the personalization, the company needs to carry out a research to determine what the clients prefer since personalization entails a race to get to know customers faster and to provide relevant and enticing deals. This can further be improved by encouraging creativity and establishing a trend scouting department that will be responsible for foreseeing and capitalizing on trends in the online market business which is highly dynamic. This department will also be responsible for unravelling consumer expectations and preferences especially in emerging markets such as Brazil and South American Latin nations.