Business SLInternal Assessments & Written Tasks

IB Business SL: Internal Assessment (IA) Example [Should Amazon.com be worried of Lazada.com attempting to dominate the market share in South East Asia?]

Do you need help with your Business SL IA/Internal Assessment? In this post I will show you my IA that I submitted to IB! You can use this to see what a Business SL IA looks like and I hope this will inspire you to create your best Business SL IA to submit to your teachers! In this IA, I asked the question Should Amazon.com be worried of Lazada.com attempting to dominate the market share in South East Asia? and analyzed all the possible outcomes of it. To view my Internal Assessment I submitted just open the PDF right below this! If the PDF does not show, you could read the text version  right below it (not recommended since it lacks formatting & images).


IB Business and Management SL IA

Should Amazon.com be worried of Lazada.com attempting to dominate the market share in South East Asia?

1.      Introduction

Amazon.com has experienced massive growth and restructuring from being the top online bookstore established over 20 years ago into the current biggest online retailer in the world with more than 1.6 billion page views per day[1]. Amazon has also globalized by making its services available to many countries of the world. The success of the company with $107 billion in revenue in 2015has been the inspiration for bigger brick and mortar companies to provide online services to combat the new e-commerce market and even spawn many competitors.

The issue, however, is that with the growing need of e-commerce in SEA (South East Asia) and the demand of Amazon’s products in the region, Amazon does not seem to provide fulfillment centers or warehouses. This means people in the region have to wait for weeks at a time for their orders to come – not to mention transport laws that cause conflicts and problems with international warranty policies – and, therefore, are hindered away from using Amazon. This springs up Lazada.com, a new online retailer competitor owned by Rocket Internet that closed an astounding $249 million round of investment back in 2014. It is even dubbed the “clone” of Amazon.com because of the similarities in the business model and operation management. Lazada’s mission is to be the world’s largest Internet platform outside the United States and China[2]. Currently, the business is mainly focusing on SEA, trying to capitalize on the demand Amazon seems to ignore. Thus this commentary will evaluate whether Amazon.com should be concerned of Lazada.com attempting to dominate the market share in South East Asia. The discussion will be viewed from different aspects: market analysis, PEST analysis, and market research.

2.      Analysis of Information with regards to the SWOT Analysis

2.1.     Market Analysis

What makes Amazon’s unique selling proposition from its competitors is how they own the widest range and the most complete bookstore in the world including Kindle, the most popular and bestselling e-reader which has been their cash cow. An opportunity that Amazon is missing out, however, is how the tablet is not officially supported or even sold internationally[3]. Being the most famous e-reader, people have to resort on buying the Kindle on third party sellers which sells for a substantial markup and even pirating e-books[4]. There is an increased demand in the region, but the business’ oversight lead Amazon to lose a money making opportunity.

A business to customer (B2C) aspect to its online retail business is Amazon’s unique program of their fulfillment centers. In fact, most of their retail sales work using the program.  The program works by letting other businesses sell their products on Amazon’s e-commerce platform. This means that a business’ inventory will be handled and placed in many fulfillment centers (packing warehouse) around the world. Amazon will then do the selling, packing, shipping, and customer service. Essentially, this means that the business can save time and focus on other aspects while Amazon does the rest at a fee[5]. This program is a win-win solution for a business in saving time, for the potential customers in having more choices to buy on the website, and to the business who will overall earn more revenue. With the same idea in mind, Lazada has exactly copied the whole process and is operating this in the Southeast Asia region.

Amazon’s weakness is also what makes the business very popular and successful. This is how Amazon uses their “zero margin strategy” which is a pricing strategy where the business runs at very low margins and sells some items at a loss by utilizing economies of scale[6]. By doing so, it attracts more customers into purchasing more items on their website. However, this means that despite the high revenue, the business gets low profits. What about Lazada? Lazada is also trying to employ this strategy by price-cutting products and competing with local competitors.

2.2.       PEST Analysis

i.   Political

South East Asia is a huge region with multiple countries, different inter-country relationships and multiple international policies. Political issues may occur since some countries might not welcome a giant company taking over the sales of smaller local businesses. Taxes will also be an issue since the different countries in the region may charge different taxes which add to the costs of setting up the business in the region. Amazon may not want to bother with the nuisance of setting up the fulfillment centers and the logistic networks because of the different industry specific regulations from the multiple countries in the region. On the other hand, Lazada has already achieved a reputation in these regions, which is an advantage and one step ahead of Amazon for Lazada.

ii.   Economic

An article published on CNBC reveals how online shopping only makes up 1% of total retail sales in Southeast Asia[7]. Since the region mainly contains developing countries, it would mean that people will demand more affordable and enticing items. Fluctuations may cause issues because of the different currencies from the various countries and the exchange rates affecting the company’s costs.  Taxes would also be an issue since multiple countries charge different taxes for different items. The low percentage of online sales and the issues relating to costs may hinder Amazon from entering the market compared to Lazada who has already adapted their business model to the market.

iii. Social

Southeast Asia’s total population of over 600 million people could benefit Amazon in earning much more revenue which is important considering their low margins. The challenge is, with multiple countries to cater to, Amazon may have problems with the difference in culture and lifestyle. Some cultures still prefer to purchase the products in brick and mortar stores compared to shopping online. This is proven by the below average minutes spent per user on a retail website, although there is a growing need for e-commerce in the region. Yet, Lazada has already reached popularity in many countries in the region. Recently, it even took over Amazon’s popularity in some of those countries as the result of their aggressive marketing campaigns, such as online advertising and TV.

iv.  Technological

The market for tablets is exponentially growing in the region. It is estimated that about three tablets are bought for every four laptops sold in the region. As mentioned earlier, this is a good potential for Kindle, considering the current demand in the market. However, the IT infrastructure in most of the countries in the region is not as developed, which means not everybody has access to the Internet.

2.3.       Market Research

An article by Takanori Okabe and Takayuki Kato exposes how in a short time, Lazada is able to reach the top online retailers in SEA faster than any other online retailers[8]. According to the analytics company comScore, Lazada was even ranked in the top 5 online retailer sites list at four of the five Southeast Asian markets where Amazon is not[9]. Analyzing the market research by using Google Trends uncovers the tendency of Google searches of Lazada and Amazon in Indonesia from April 2012 to January 2016. Comparing both graphs verifies how much Lazada has overtaken Amazon’s popularity back in 2012 and is now still growing exponentially while Amazon is not[10].  The graph also shows how Lazada’s popularity skyrocketed far from Amazon after 2012. Ansuya Harjani from CNBC.com has even stated that Lazada is even said to have 1 million visitors a day[11], impressive for a new company.

3.      Conclusion and Recommendation

In conclusion, should Amazon.com be concerned of Lazada.com attempting to dominate the market share in South East Asia? Yes, it is obvious that Lazada has overtaken Amazon’s place in several countries in the region. Surprisingly, comScore’s data has proven that Lazada.com has become one of the motivators of the growth of the demand of online shops. PEST analysis has shown the potential revenue that Amazon could make with more than 600 million populations in the region. Market analysis shows how Kindle is demanded in the region whereas Amazon does nothing about it. These are good reasons why Amazon should set up in SEA. However, Amazon should also consider that setting up in SEA is going to be costly. PEST analysis has shown how each country in the regions has its own problems and how complicated it would potentially be for Amazon. This might be why Amazon is currently not set up in SEA.

Amazon should consider going into the South East Asian market. Looking back at Amazon’s “zero margin” strategy, the business could use the addition of the region to boost up the total revenue and profits considering the total population. Another strategy proposed backed up by my PEST analysis suggests that Amazon should purchase Lazada.com which is possible for Amazon considering their deep pockets and history of purchasing and converting other businesses into their own. Doing this helps with eliminating the legal and logistic problems and would be an easy transition since Lazada operates similarly to Amazon.

Appendix

SWOT Analysis for Amazon

Strength Weaknesses
•       The world’s biggest and leading online retailer with books as its main focus

•       Ahead of the competitors in logistics and distribution systems.

•       The service is open globally and reaches many parts of the world.

•       The business owns Kindle the best-selling and most demanded e-readers.

•       Excellent customer service.

•       The “zero-margin strategy” (selling with low markup) that Amazon uses might be dangerous for the business’ profitability even if the company has high revenues.

•       Amazon needs high cost in operating the logistics chain.

•       Amazon does not have a fulfillment center in South East Asia

•       Kindle is not supported in multiple countries.

Opportunities Threats
•       Amazon could focus on more innovation where they currently are creating rivals to Google Play, Netflix, and other services.

•       Amazon could branch out further into more countries and regions of the world since Amazon is known for only providing services to established and well-populated countries.

•       Amazon’s pricing strategy could put the business in trouble of lawsuits from other competitors.

•       Online shopping might pose a concern to users because of the possibility of hacking and identity theft.

•       New businesses/competitors and other online retailers such as Lazada tries to copy Amazon’s success.

 

 

Supporting Documents

Bibliography:

“Amazon.com: Fulfillment by Amazon – Benefits.” Amazon.com: Fulfillment by Amazon Benefits. Amazon. Web. 2 Feb. 2016. <https://services.amazon.com/fulfillment-by-amazon/benefits.htm>.

Chandler, Sean. “The Ultimate Stretch In Economies Of Scale.” The Ultimate Stretch In Economies Of Scale Amazon.com, Inc. (AMZN). Seeking Alpha, 30 May 2014. Web. 2 Jan. 2016. <http://seekingalpha.com/article/2245923-the-ultimate-stretch-in-economies-of-scale>.

“Wolfram|Alpha: Computational Knowledge Engine.” Wolfram|Alpha: Computational Knowledge Engine. Wolfram|Alpha. Web. 1 Jan. 2016. <http://www.wolframalpha.com/input/?i=amazon.com>

 

Supporting Documents:

Source 1:

“Google Trends – Web Search Interest: Amazon – Worldwide, 2004 – Present.” Google Trends. Google. Web. 3 Jan. 2016. <http://www.google.com/trends/explore?q=amazon#q=amazon, lazada>.

Source 2:

Harjani, Ansuya. “Meet the Man behind the ‘Amazon of Southeast Asia’.” CNBC Meet the Man behind the ‘Amazon of Southeast Asia’. CNBC LLC, 17 Apr. 2014. Web. 4 Jan. 2016. <http://www.cnbc.com/2014/04/11/meet-the-man-behind-the-amazon-of-southeast-asia.html>.

Source 3:

Hong, Kaylene. “Amazon Should Get Its Game On In Southeast Asia.” Amazon, It’s Time to Get Your Game on in Southeast Asia. TNW Network, 10 Jan. 2014. Web. 12 Dec. 2015. <http://thenextweb.com/asia/2014/01/10/amazon-its-time-to-get-your-game-on-in-southeast-asia/#gref>.

Source 4:

TAKANORI OKABE, and TAKAYUKI KATO. “Lazada Seeks E-commerce Dominance in Southeast Asia- Nikkei Asian Review.” Nikkei Asian Review. Nikkei Inc, 11 Sept. 2014. Web. 14 Feb. 2016. <http://asia.nikkei.com/Business/Companies/Lazada-seeks-e-commerce-dominance-in-Southeast-Asia?>.

Source 5:

“We Build Companies.” About | Rocket Internet. Rocket Internet. Web. 1 Jan. 2016. <https://www.rocket-internet.com/about>.

 

[1] “Wolfram|Alpha: Computational Knowledge Engine.” Wolfram|Alpha: Computational Knowledge Engine. Wolfram|Alpha. Web. 1 Jan. 2016.

[2] “We Build Companies.” About | Rocket Internet. Rocket Internet. Web. 1 Jan. 2016. <https://www.rocket-internet.com/about>.

[3]Hong, Kaylene. “Amazon Should Get Its Game On In Southeast Asia.” Amazon, It’s Time to Get Your Game on in Southeast Asia. TNW Network, 10 Jan. 2014. Web. 12 Dec. 2015.

[4] Ibid.

[5] “Amazon.com: Fulfillment by Amazon – Benefits.” Amazon.com: Fulfillment by Amazon – Benefits. Amazon. Web. 2 Feb. 2016. <https://services.amazon.com/fulfillment-by-amazon/benefits.htm>.

[6] Chandler, Sean. “The Ultimate Stretch In Economies Of Scale.” The Ultimate Stretch In Economies Of Scale Amazon.com, Inc. (AMZN). Seeking Alpha, 30 May 2014. Web. 2 Jan. 2016. <http://seekingalpha.com/article/2245923-the-ultimate-stretch-in-economies-of-scale>.

[7] Harjani, Ansuya. “Meet the Man behind the ‘Amazon of Southeast Asia’.” CNBC Meet the Man behind the ‘Amazon of Southeast Asia’. CNBC LLC, 17 Apr. 2014. Web. 4 Jan. 2016. <http://www.cnbc.com/2014/04/11/meet-the-man-behind-the-amazon-of-southeast-asia.html>.

[8] TAKANORI OKABE, and TAKAYUKI KATO. “Lazada Seeks E-commerce Dominance in Southeast Asia- Nikkei Asian Review.” Nikkei Asian Review. Nikkei Inc, 11 Sept. 2014. Web. 14 Feb. 2016. <http://asia.nikkei.com/Business/Companies/Lazada-seeks-e-commerce-dominance-in-Southeast-Asia?page=1>.

[9] Ibid.

[10] “Google Trends – Web Search Interest: Amazon – Worldwide, 2004 – Present.” Google Trends. Google. Web. 3 Jan. 2016. <http://www.google.com/trends/explore?q=amazon#q=amazon, lazada>.

[11] Harjani, Ansuya. “Meet the Man behind the ‘Amazon of Southeast Asia’.” CNBC Meet the Man behind the ‘Amazon of Southeast Asia’. CNBC LLC, 17 Apr. 2014. Web. 4 Jan. 2016. <http://www.cnbc.com/2014/04/11/meet-the-man-behind-the-amazon-of-southeast-asia.html>.

3 thoughts on “IB Business SL: Internal Assessment (IA) Example [Should Amazon.com be worried of Lazada.com attempting to dominate the market share in South East Asia?]

  1. do u think ‘Should Amazon be worried of Taobao attempting to dominate the market share in China?’ is a good question for bm ia ?

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