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Mục tiêu của nghiên cứu là so sánh sự cạnh tranh giữa Amazon và eBay trong nền công nghiệp thương mại điện tử. Đánh giá những chiến lược hiện tại của họ và so sánh làm cách nào mỗi chiến lược của công ty sẽ bị ảnh hưởng bởi văn hóa, sơ đồ tổ chức và quản lý vận hành. Xác định những vấn đề chiến lược cái mà quản lý tại mỗi công ty cần phải giải quyết để có thể thành công và kiếm được lợi nhuận hơn. Cuối cùng đưa ra giải pháp cho các hành động chiến lược cũng như điều hành công ty. HO CHI MINH CITY NATIONAL UNIVERSITY BACH KHOA UNIVERSITY SCHOOL OF INDUSTRIAL MANAGEMENT BUSSINESS OF ADMINISTRATION o0o GROUP ASSIGNMENT Course Strategic Management Lecturer Contents OBJECTIVES OF T.
HO CHI MINH CITY NATIONAL UNIVERSITY BACH KHOA UNIVERSITY SCHOOL OF INDUSTRIAL MANAGEMENT BUSSINESS OF ADMINISTRATION -o0o - GROUP ASSIGNMENT Course: Strategic Management Lecturer: Contents OBJECTIVES OF THE STUDY The aim of the study is to investigate the comparison of competitiveness between Amazon and eBay in e-commerce industry in 2019, evaluate their current strategies, compare how each company’s strategy execution was impacted by its organization culture, organization structure and operations management, determine the strategic issues that the management at each company needs to address and resolve for their respective companies to be more financially and competitively successful in the short term and long term, and finally to give the recommendation of changes to strategies and strategic actions as well as changes to managerial actions COMPARISONS OF COMPETITIVENESS The competitive market positions that the two companies occupy in the ecommerce industry US ecommerce market share Harris Poll Reputation Quotient - US Rating & Raking Categories Amazon 49.1% 83.22 36 Costco 1.2% 79.18 19 Apple 3.9% 78.56 Best buy 1.3% 75.19 14 eBay 6.6% 75.00 26 Walmart 3.7% 68.52 35+ Strong Amazon Costco Brand awareness/Reputation Best Buy Apple eBay Walmart Weak Narrow Number of product categories Broad US ecommerce market share 2019 Amazon Costco Apple Best buy 49.1% 1.2% 3.9% 1.3% Market capitalization (billion USD) Oct 24, 2019 822.61 130.62 1100 18.87 eBay Walmart 6.6% 3.7% 30.3 338.19 Profit Margin 2019 18.33% 2.48% 4.8% 2.4% 21.5% 3.52% Amazon High Apple Market capitalization Walmart Costco Best Buy Low eBay Low Profit margin High Map 1: The strategic groups located in least favorable markets are strong and weak brand awareness/reputation in narrow number of product categories The strategic group located in most favorable market is strong brand awareness/reputation in a large number of product categories Map 2: The strategic group located in least favorable market is high market capitalization with high profit margin The strategic group located in most favorable market is high market capitalization with low profit margin As can be seen, Amazon gain a huge market share (nearly 50%), more than all other ecommerce firms combined Amazon’s next-closest rival, eBay, a very distant gap at 6.6%, and Apple in third at 3.9% Clearly, Amazon is dominant in current US e-commerce industry However, Amazon has to face threats from nearby group as eBay or Walmart The competitiveness of each company’s costs and prices Value Chain Analysis of Amazon Value Chain Analysis of Amazon Step - Firm's primary activities completed quality inventory control order marketing sales distribution fulfilment customer service Step - Total cost and importance (in millions) $17.34 important $12* $13,814 $139,156 $27,7 less less very important important important important $34,027 important $14* less important Step - Cost drivers number of items number of inspections the hours of inspection Size of number of number of advertising number delivery completed budget of orders hours order Number of received advertiseme nts Number of service calls attended number of staff in service department Frequency Number of number of of defects online sales warranties handled personnel Level of Strength of quality existing targets reputation Hours spent on servicing Step - Links between activities High-quality control reduces defects, warranty costs and dealer support activities Effective handling and better shipping to reduce product damage Locating plants near the cluster of suppliers or dealers reduces purchasing and distribution costs Higher order sizes increase warehousing costs Step - Opportunities for reducing costs increase discounts from suppliers, and reduce defects in our processes investment in computer scientists, designers, software and hardware engineers, and merchandising employees => expansion of new and existing product categories and service offerings, as well as in technology infrastructure to enhance the customer experience and more improve process efficiencies=> larger benefits than the cost of investment create intensive automation and robotic solutions such as robots to manage receipt, stowing, picking, and shipment of items => cut down on warehouse and staffing costs – freeing up funds for other logistics or supply chain needs => delivery speeds quickly Value Chain Analysis of eBay Value Chain Analysis of Ebay Step - Firm's primary activities product development Sale & Marketing distribution (acquired) completed order fulfilment customer service Step - Total cost and importance (millions of US $) $1,285 less important $3,391 very important $1,2* less important $*2.891 very important $1.2* less important Step - Cost drivers Size of advertising budget Level of quality development and maintenance of the technology number of delivery hours number of completed order Number of service calls attended Number of advertisements number of staff in service department Number of online sales personnel number of warranties handled number of orders received Hours spent on servicing Strength of existing reputation Step - Links between activities lower defect rate better customer satisfaction higher technology faster purchasing process Effective incoming input handling to reduce damage Step - Opportunities for reducing costs Diversify, but unprofitable/unfit businesses should be closed reduce the size of advertising budget increase the bargaining power with distributors to minimize the fee ship *estimated Competitive strength assessment A weighted competitive strength assessment of eBay and Amazon uses the key success factors of the industry and weights them to determine two companies’ standing within the E-commerce industry The key success factor was given a weight of 0.2 (costeffectiveness based on scale economies), the highest ranking, while image/reputation and product diversification were given the lowest weight of 0.1 eBay’s 1.8 weighted strength rating on cost-effectiveness based on scale economies signals a competitive advantage over Amazon (with a weighted score) The higher a company’s overall weighted strength rating, the stronger its overall competitiveness versus rivals Therefore, Amazon’s overall weighted score of 7.85 indicates a greater net competitive advantage over eBay (with a score of 7.2) This analysis shows that a company does not have to be better than its rivals in every category, just as long as they are ahead in the most important ones Competitive Strength Assessments [Rating scale: = Very weak; 10 = very strong] Amazon eBay Importanc Strength Weighted Strength Weighted e Weight Rating Score Rating Score Key Success Factors and Strength Measures Good customer service capabilities 0.15 Product diversification 0.1 inventory/cost 0.15 Image/reputation 0.1 new product innovation capability 0.15 Financial resources 0.15 cost-effectiveness based on scale economies 0.2 Sum of importance weights Overall weighted competitive strength rating 8 1.2 0.8 1.35 0.8 7 8 1.05 0.7 1.2 0.8 9 1.35 1.35 0.9 0.75 1.8 7.85 7.2 10 EVALUATION OF CURRENT STRATEGIES AMAZON’S EVALUATION OF CURRENT STRATEGIES The fit test Amazon’s QSPM matrix is shown below, more detail presented in Appendix part: Strategy Sum Total Attractiveness score COST LEADERSHIP MARKET DEVELOPMENT MARKET PENETRATION DIVERSIFICATION 6.8 6.11 4.67 5.87 We used the tool Quantitative Strategic Planning Matrix (QSPM) to measure how fit the external and internal factors of the company to Amazon’s strategy In Amazon’s case, according to QSPM matrix, the most attractive strategy is cost leadership strategy with the STAS is 6.8 and followed by market development 6.11 This means its strategies fit the company’s situation well The most critical success factor for e-commerce businesses like Amazon is the effective mobilization of large quantities of goods immediately and good inventory management An online shopping channel like Amazon does not own its own inventory, instead, it is dependent on the circulation business or manufacturing business that provides the product This is what helps Amazon reduce huge costs for physical store maintenance and inventory management, which is the secret to help Amazon provide consumers with lower-cost products That in turn gives it cost advantages The Performance Test According to Amazon’s Income Statement for the twelve months ending June 30, 2019 (Amazon Income Statement 2005-2019 | AMZN, n.d.): Revenue: 252.1B, a 21.11% increase year-over-year Net income: $12.1B, a 92.76% increase year-over-year Amazon’s market share in US e-commerce industry in 2018: 49.1% (Lunden, 2018) (rise by 5.1% compared to 2017 (Thomas, 2018)) In 2019, Amazon uses cost leadership as its generic strategy for competitive advantage Minimization of operational costs is the objective in this generic competitive strategy 11 There was an increase of 121.11% in Revenue, Net Income rose by $5.8B in the twelve months ending June 30, 2019 This shows that cost leadership is a winning strategy for Amazon Whereas, thanks to pursuing market development as its primary intensive growth strategy, Amazon managed to increase its market share in US e-commerce industry in 2018, rising to nearly a half compared to 2017 In 2018 Amazon was present in 16 countries like United States, United Kingdom, Ireland, France, Canada, Germany, Italy, Spain, Netherlands, Australia, Brazil, Japan, China, India, UAE and Mexico EBAY’S EVALUATION OF CURRENT STRATEGIES The fit test eBay’s QSPM matrix is shown below, more detail presented in Appendix part: Market penetration Strategy STAS Market development Broad differentiation 4.35 5.25 Cost leadership 4.45 6.4 To the eBay case, we also use QSPM tool in order to evaluate whether its strategies match well with its external and internal conditions As can be seen, cost leadership and broad differentiation are the most attractive ones with 6.4 and 5.25 in turn These strategies and their corresponding strategic objectives support eBay’s mission statement and vision statement, which aim for industry leadership against competitors like Amazon, Rakuten, Etsy, Bonanza, and Newegg According the eBay case, eBay chose cost leadership and market penetration as its generic strategy and dominant intensive growth strategy respectively Its market penetration strategy did not fit well with the current company’s situation while cost leadership fit well The Performance Test According to eBay’s Income Statement for the twelve months ending June 30, 2019 (EBay Financial Statements 2005-2019 | EBAY, n.d.): Revenue: $10.9B, a 4.13% increase year-over-year Net income: $2.5B, a 332.66% increase year-over-year eBay’s market share in US e-commerce industry in 2018: 6.6% (Lunden, 2018) (a 0.2% decrease by compared to 2017-6.8% (Molla, 2017)) eBay Inc.’s generic strategy is cost leadership The company develops and maintains competitive advantage based on cost minimization, which translates to low prices or high profit margins In this case, for example, eBay’s generic competitive strategy involves technologies that minimize fixed and variable costs in multinational e-commerce 12 operations, which leading to a significant increase in its net income Moreover, eBay’s dominant intensive growth strategy is market penetration As a cost leader, one of eBay’s strategic objectives based on market penetration is to meet competition with the biggest rival as Amazon by enhancing technological efficiency However, eBay’s market-share in US e-commerce industry in 2018 experienced a decrease of 0.2% Those figures show that cost-leadership is a winning strategy for eBay while market penetration is not IMPACT OF MANAGERIAL ACTIONS ON THE EXECUTION OF STRATEGIES AMAZON: (not fit at all=0, moderately fit=1, fit=2) Cost leadership Market development Organization culture Organization structure Operations management 2 EBAY: (not fit at all=0, moderately fit=1, fit=2) Cost leadership Organization culture Organization structure Operations management Market penetration 2 STRATEGIC ISSUES Amazon For the cost-effectiveness based on scale economies factor - the highest weight, Amazon’s strength rating (5) was ranked lower than eBay (9) Expanding market of 13 Amazon can lead to an increase in cost of operation process, which leads to lower costeffectiveness (cost is too high compared to benefits) To increase cost-effectiveness, Amazon needs to have strategy action Solution: To minimize costs, the cost leadership generic competitive strategy is suitable As the nature of ecommerce, the company benefits from process automation, which is generally used in purchase processing, scheduling, and other operational processes These benefits enable Amazon to minimize the cost of its online retail and other services eBay Based on the results of Competitive Strength Assessments, eBay’s new product innovation capability is lower than Amazon As a result, eBay is hard to strong bargaining power of customers which addresses the threats of substitutions and new entry Solution: eBay should have strategy action for product development Cost leadership in production development is suitable for the problem The company develops and introduces new products to consumers and sellers, who are the target users of the ecommerce platform For example, trading through mobile devices is a trend that warrants the continual development of new products/services for mobile users RECOMMENDATION OF CHANGES TO STRATEGIES AND STRATEGIC ACTIONS Amazon – Continuing to use cost leadership and use horizontal merge to improve the profit margin and strengthen the market position Towards Amazon case, we estimated various threats (high bargaining power of suppliers and customers), strengths (high market capitalization, high awareness) and weaknesses (high common costs) which Amazon is currently facing After analyzing the QSPM matrix, we got the new scores below: Strategy Cost leadership Sum Total Attractivenes s score Market development Market penetration Diversificatio n Horizontal integration 6.05 6.5 5.38 4.6 5.28 As can be seen, cost leadership is still the most attractive option for Amazon’s generic competitive strategy, followed by strategic action “horizontal integration” with 6.05 Due to pursuing of market development strategy, Amazon wants to enter and launch a new market, and this leads to higher costs in operation, management, etc Moreover, Amazon 14 has to face some threats as higher bargaining powers of suppliers and customers For example, Chinese customers can easily choose Alibaba instead of Amazon without cost switching Thus, Amazon needs to use the horizontal integration in order to strengthen its market position By horizontally merging with other rivals will help Amazon lower the bargaining power of suppliers and customers, gain bigger market share, lower rivalry, senior management duplicated can be eliminated, better profitability, reduce common costs, due to sharing the management cost, for example What is more, Amazon can acquire its rivals thanks to its huge financial resources in order to increase its horizontal scope eBay – Keeping on pursuing cost leadership strategy and using fast follower Market penetration Strategy STAS Market development Broad differentiation 4.35 5.25 Cost leadership 4.45 6.4 Fast followe r 6.25 In terms of the eBay case, we think eBay should continue to pursue their current generic competitive strategy due to their good result of cost-effectiveness, leading to gain high profit margin With the second highest score- fast follower will help eBay improve its competitive position and profitability The reason why eBay should become a fast follower is costs of pioneering are high in e-commerce industry, so if eBay imitate its rivals, eBay will achieve similar benefits with far lower costs, even avoiding making same costly mistakes as its rivals did For example, Amazon has found tremendous success with its Amazon’s Fulfillment by Amazon (FBA) program The company has built up a small army of resellers who deal in retail arbitrage, which essentially involves the sellers buying clearance items from brick-and-mortar retail outlets and shipping them directly to Amazon for resale From there, Amazon handles storage, fulfillment, and shipping In July 2109, eBay has announced plans to get into the game with its own Managed Delivery fulfillment service in 2020 RECOMMENDATION OF CHANGES TO MANAGERIAL ACTIONS AMAZON A disadvantage of Amazon’s organization culture is that it imposes a strain on human resources, especially in pushing employees to take a bold and peculiar nonconventional approach in doing their jobs We think Amazon should design compensation motivations and award to individuals who work hard and efficiently For example, Amazon can give employees bonuses based on attainment of performance-based goals, or stocks since if 15 the business does well and the company’s stock rises, the holders of the options share in the financial benefits, thus, employees are willing to work more innovatively EBAY A disadvantage or weakness of eBay Inc.’s organization culture is the lack of emphasis on continuous learning Another disadvantage of the company’s corporate culture is the limited cultural emphasis on speed and efficiency Those negatively impact on its strategic action – fast follower To become a fast follower, eBay has to be more innovative, and fast enough to chasing its bigger rivals We suggest that eBay should encourage its employees to learn continuously because of the rapid pace of technology advancements through regularly open training courses, intensive classes CONCLUSION Sales from e-commerce are proving that this is a business area with long-term global growth prospects As a result, more and more e-commerce companies jump into this industry, making it become more competitive ever than before Our study show that Amazon is still a leader in US e-commerce, and its far distant rival as eBay We also gave evaluations about their current strategies as well as their strategy execution Moreover, we found out strategic issues of two companies and suggest solutions And finally, we gave some recommendations to strengthen two companies’ competitive positions and profitability APPENDICES Amazon’s QSPM matrix Key factors Weigh t Cost leadershi p A TA S S Internation al Market Penetration in Asia Product Developme nt Diversificati on AS TAS AS AS 0.4 TAS TAS Opportunities Expansion in developing markets 0.2 0.8 0.2 0.6 16 Expansion of brick-and-mortar business operations New partnerships with other firms, especially in developing markets 0.1 0.6 0.28 0.28 0.28 0.1 0.3 0.4 0.4 0.4 Aggressive competition with online and non-online firms 0.3 0.9 1.2 0.9 0.6 Cybercrime 0.2 0.5 0.45 0.3 0.3 Imitation of business model and products 0.1 0.4 0.33 0.44 0.44 Threats Total 3.5 3.06 2.52 2.62 Strengths Strong brand 0.2 0.8 0.6 0.4 0.6 Moderate and expanding business diversification 0.2 0.5 0.3 0.3 0.6 High capability for rapid technological innovation, especially in online service 0.2 0.5 0.45 0.6 0.45 Limitable business model 0.2 0.6 0.8 0.4 0.4 Limited penetration in developing markets 0.2 0.6 0.45 0.15 0.6 Limited brick-and-mortar presence 0.2 0.5 0.45 0.3 0.6 Weaknesses Total Sum Total Attractiveness score Key factors Opportunities Expansion in developing markets Expansion of brick-andmortar business operations New Weigh t 3.4 3.05 2.15 3.25 6.8 6.11 4.67 5.87 Cost leadership Market penetratio n Market penetratio n Diversificatio n Horizontal integration Offensive action A S TAS AS TAS AS TAS AS AS AS TAS 0.2 0.8 0.4 0.2 0.6 0.1 0.6 0.28 0.3 0.28 0.1 0.3 0.4 0.4 0.4 TAS TAS 0.6 0.6 0.3 0.4 3 0.3 0.3 17 partnerships with other firms, especially in developing markets Threats High bargaining power of customers High bargaining power of suppliers Aggressive competition with online and non-online firms Cybercrime Imitation of business model and products Total 0.1 0.1 0.25 0.1 0.2 0.8 0.1 0.2 1 0.1 0.2 0.8 2 0.2 0.2 0.15 0.1 0.1 0.1 0.4 0.3 0.4 0.4 2.83 2.4 0.2 0.4 0.2 0.7 0.1 0.7 0.1 0.2 3.0 0.2 0.5 3.3 0.3 0.2 0.05 2.68 2.7 Strengths Strong brand High market capitalization High awareness Moderate and expanding business diversification High capability for rapid technological innovation, especially in online service Weaknesses Limitable business model Limited penetration in developing markets Limited brickand-mortar presence High common costs Total 0.15 0.6 0.45 0.3 0.45 0.15 0.3 0.3 0.3 0.3 0.1 0.2 0.1 0.2 0.2 0.05 0.2 0.1 0.1 0.2 0.1 0.3 0.3 0.4 0.3 0.4 0.2 0.2 0.15 0.6 0.45 0.2 0.6 0.05 0.2 0.15 0.1 0.2 0.15 0.6 0.3 0.5 0.15 2.55 2.2 0.3 0.6 0.3 0.3 0.3 0.1 0.1 0.3 0.3 0.2 0.2 0.3 0.3 0.1 0.1 0.6 3.2 0.3 0.1 0.4 2.6 0.3 2.2 18 Sum Total Attractiveness score 6.5 5.38 4.6 5.28 6.0 4.9 19 eBay’s QSPM matrix Key factors Opportunities Expansion of operations to more markets Improvement in innovation rate Improvement in customer service quality Diversification Weight Cost leadership Broad differentiation Market development Market penetration AS AS AS AS TAS TAS TAS TAS 0.1 0.4 0.3 0.1 0.3 0.3 0.3 1.2 0.6 0.6 0.15 0.15 0.3 0.45 0.6 0.1 0.2 0.4 0.1 0.1 Threats Strong competitor 0.1 0.3 0.4 0.3 0.2 Imitation Potential industry disruption through new technologies 0.15 0.45 0.6 0.3 0.3 0.1 0.2 0.3 0.4 0.4 Total Strengths Strong brand Cost-effectiveness based on economies of scale Region-specificity of operations High effectiveness of service Weaknesses Limited emphasis on innovation Limited flexibility to market variations Imitable business model Total Sum Total Attractiveness score 3.5 2.25 2.5 0.2 0.2 0.6 0.4 0.6 0.15 0.6 0.3 0.3 0.6 0.15 0.45 0.3 0.6 0.45 0.1 0.2 0.3 0.1 0.1 0.2 0.4 0.8 0.4 0.2 0.1 0.4 0.3 0.1 0.4 0.1 0.2 0.3 0.2 0.4 2.45 2.9 2.1 2.75 4.45 6.4 4.35 5.25 20 Key factors Opportunities Expansion of operations to more markets Improvement in innovation rate Improvement in customer service quality Diversificatio n Weigh t Broad differentiatio n Cost leadershi p AS AS TAS TA S Market development Market penatration Fast follower AS AS AS TAS TAS 0.1 0.4 0.3 0.1 0.3 0.3 0.3 0.3 1.2 0.6 0.6 1.2 0.15 0.15 0.3 0.4 0.6 0.4 0.1 0.2 0.4 0.1 0.1 0.4 0.1 0.3 0.4 0.3 0.2 0.15 0.45 0.6 0.3 0.3 0.4 0.4 0.1 0.2 0.3 0.4 0.4 0.4 Threats Strong competitor Imitation Potential industry disruption through new technologies Total Strengths Strong brand Costeffectiveness based on economies of scale Regionspecificity of operations High TAS 2.2 3.5 2.5 3.6 0.2 0.2 0.6 0.4 0.6 0.4 0.15 0.6 0.3 0.3 0.6 0.3 0.4 0.1 3 0.4 0.3 0.15 0.1 0.45 0.2 0.3 0.3 0.6 0.1 21 effectiveness of service Weaknesses Limited emphasis on innovation Limited flexibility to market variations Imitable business model Total Sum Total Attractivenes s score 0 0.2 0.4 0.8 0.4 0.2 0.6 0.1 0.4 0.3 0.1 0.4 0.3 0.1 0.2 0.3 0.2 0.3 2.6 2.45 4.45 2.9 2.1 0.4 2.7 6.4 4.3 5.2 6.2 The gross profit of Amazon and Ebay: 22 The gross margin of Amazon and Ebay: Markup: Amazon markup 67.36% Ebay 78.34% References Amazon Income Statement 2005-2019 | AMZN (n.d.) Retrieved from macrotrends: https://www.macrotrends.net/stocks/charts/AMZN/amazon/income-statement EBay Financial Statements 2005-2019 | EBAY (n.d.) Retrieved from macrotrends: https://www.macrotrends.net/stocks/charts/EBAY/ebay/financial-statements Lunden, I (2018, July 18) Amazon’s share of the US e-commerce market is now 49%, or 5% of all retail spend Retrieved from Tech Crunch: https://techcrunch.com/2018/07/13/amazons-share-of-the-us-e-commerce-marketis-now-49-or-5-of-all-retail-spend/ Molla, R (2017, October 24) Amazon could be responsible for nearly half of U.S ecommerce sales in 2017 Retrieved from Vox: https://www.vox.com/2017/10/24/16534100/amazon-market-share-ebay-walmartapple-ecommerce-sales-2017 23 Thomas, L (2018, January 3) Amazon grabbed percent of all US retail sales in 2017, new study says Retrieved from CNBC: https://www.cnbc.com/2018/01/03/amazon-grabbed-4-percent-of-all-us-retailsales-in-2017-new-study.html BLOOMBERG (2019, July 24) eBay Is Planning New Shipping Service to Challenge Rival Amazon Retrieved from BOF: https://www.businessoffashion.com/articles/news-analysis/ebay-is-planning-newshipping-service-to-challenge-rival-amazon JOHNSON, S (2019, June 11) Amazon becomes world’s most valuable brand, beating Google and Apple Retrieved from BIG THINK: https://bigthink.com/technologyinnovation/amazon-most-valuable-company Long, D (2019, April 18) Amazon to withdraw e-commerce business from China Retrieved from The Drum: https://www.thedrum.com/news/2019/04/18/amazonwithdraw-e-commerce-business-china 24 ... 2.7 6.4 4.3 5.2 6.2 The gross profit of Amazon and Ebay: 22 The gross margin of Amazon and Ebay: Markup: Amazon markup 67.36% Ebay 78.34% References Amazon Income Statement 2005-2019 | AMZN... follower will help eBay improve its competitive position and profitability The reason why eBay should become a fast follower is costs of pioneering are high in e-commerce industry, so if eBay imitate... found out strategic issues of two companies and suggest solutions And finally, we gave some recommendations to strengthen two companies’ competitive positions and profitability APPENDICES Amazon? ??s