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External Factor Evaluation matrix is a well-known tool of strategic management used to estimate the current business conditions. “The EFE matrix is a good tool to visualize and prioritize the opportunities and threats that a business is facing” (“EFE Matrix”). The EFE matrix and the IFE matrix are very similar analyses. The main difference between the models is the types of factors considered. On the one hand, the EFE matrix analyzes external factors of company’s business conditions including opportunities and threats. On the other hand, the IFE matrix is often applied to evaluate a company’s internal factors and its abilities to respond to them. The internal-external matrix is another tool of the strategic analysis that allows assessment of the company’s business conditions and its strategic position. It gives an opportunity to examine the aforementioned two groups of factors of the company’s performance. In order to facilitate the process of building the EFE matrix, the results of the organization’s SWOT analysis should be used. In fact, its opportunities and threats should be analyzed.
First of all, some background information about the company under consideration should be provided. Amazon is an American online retailer of books, toys, movies, food, apparel, etc. It is the largest online retailer in the world. Amazon was founded in 1994 by Jeff Bezos. The company’s net sales increased from $48 billion in 2011 to $61 billion in 2012 and $74.4 billion in 2013 (“Amazon.com Inc. (AMZN) Income Statement”). Therefore, the company’s scales of activity are growing, and its market share is increasing.
In order to evaluate the Amazon’s external factors, firstly they should be defined. Based on the common practice of EFE matrix application, it is reasonable to divide the company’s external factors by its opportunities and threats. The company’s opportunities include:
- Extension of the company’s current payment system;
- Company’s focus on releasing its own brand goods;
- Increasing the company’s offering by extending its products and services through acquisitions;
- Open new marketplaces and online stores in developing countries of Asia and Europe;
- Improvement of thecompany’s physical presence.
On the other hand, the company’s threats consist of the following:
- Security of online personal information;
- Lawsuits against the company;
- Challenges from strategic unions;
- Decreased company’s profit due to legislation against tax avoidance;
- Competition with regional online retailers.
In order to create the complete analysis of external influences, the entire range of factors should be explained.
Extension of the company’s current payment system
The Amazon may increase the number of its customers by extending its current payment system. In fact, the customer will be able to make payments easier by using the system like PayPal. In addition, extending the company’s current payment system will be very useful for mobile buyers.
Company’s focus on releasing its own brand goods
In fact, the Amazon offers a lot of products and services produced by other brands. However, the company can obtain numerous benefits by concentrating on releasing its own brand goods, which will increase brand recognition and market coverage.
Increasing the company’s offering by extending its products and services through acquisitions.
As it stated by the Strategic Management Insight, “the company has already acquired many companies to successfully extend its products and services offering” (“SWOT analysis of Amazon”).
Open new marketplaces and online stores in developing countries of Asia and Europe.
According to the company’s annual report, “We’re also expanding our geographic footprint. We now have 10 AWS regions around the world, including the East Coast of the U.S., two on the West Coast, Europe, Singapore, Tokyo, Sydney, Brazil, China, and a government – only region called GovCloud” (“Amazon.com Inc. 2013 Annual Report”). However, the company is able to increase the number of its customers by opening new online stores and websites in developing countries of Asia and Europe.
Improvement of the company’s physical presence
It is noteworthy that the company’s physical presence can be significantly improved by opening new warehouses, stores, and distribution centers in different locations to improve logistics. Thus, the number of the company’s customers would be increased due to such improvement of physical presence. Moreover, customer satisfaction would improve due to decreased shipping time.
Security of online personal information
Amazon saves its customers personal information and, that is why, the company’s databases can be “a target for online thefts. The more online customers Amazon has, the more attractive as a target it becomes” (“SWOT analysis of Amazon”). However, the company is able to solve this problem by keeping the needed data on outsourced bearers. Thus, the company should avoid the potential online thefts by improving the security of the customer’s personal information.
Lawsuits against the company
According to the company’s annual report, there were many complaints against Amazon from Austro-Mechana, Big Baboon, Walker Digital LLC, Personalweb Technologies, Round Rock Research, OIP Technologies, Clouding IP, Hand Held Products, Norman Blagman, Lexington Luminance, Adaptix, Inc., Telebuyer, and other organizations (“Amazon.com Inc. 2013 Annual Report”). The lawsuits are very expensive and, as a result, they decrease the company’s profits and effectiveness. In addition, legal action affects company’s public image.
Challenges from strategic unions
“The strategic alliance between Apple and e-books content providers allowed the content providers to demand that Amazon would sell e-books for higher price or that they will sell their e-books through Apple store only” (“SWOT analysis of Amazon”). Thus, the company should take into account the possibility of strategic alliances and take steps to counteract them.
Decreased company’s profit due to legislation against tax avoidance
The growing concerns about the tax avoidance by large multinational corporations can lead to legislation against tax avoidance. Thus, the company’s profits can be significantly decreased.
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