The Key Drivers of Globalization and International Trade on the Context of the Amazon Organization
Globalization is the name used to describe the growing cross-border trade in products, services, technology and investment, and people and knowledge flows of economies, cultures, and populations in the world. Various technological developments and progressive shifts in the international economy propel globalization (Verbeke, Coeurderoy, and Matt, 2018). The growth of communication networks is one of the biggest forces of globalization (Kleistra, 2018). Major drivers of globalization include Information and Communication Technologies (ICTs), improvements in transportation services, and falling trade barriers.
Information and Communication Technologies (ICTs)
Information and communications technology (ICT) generally comprises the Internet and World Wide Web and search engines. Voice over IP (WhatsApp) and new platforms for payments, such as the use of PayPal, have also been developed (Tou et al., 2019). The growth of different social media platforms and E-commerce technologies, which enable organizations like Alibaba, Amazon, and eBay to conduct their transactions and trade globally, has also played a significant role in the modern world (Mohanty, 2019). The Internet is a worldwide data network, and it helps foreign trade by enabling enterprises to promptly and efficiently advertise their products, accept requests, and sell or transact goods and services to customers (Kurniawati, 2020). Amazon has employed a straightforward strategy for new markets: entering countries with rapid growth as a percentage of overall retail in terms of e-commerce adoption (Latif et al., 2018). More than 287 million people in the US used the Internet in 2017 – with online purchases estimated at 440 billion dollars by the end of the year (Tou et al., 2019).
Trade barriers are policies that impose foreign trade restrictions. Some of these trade barriers include tariffs, embargoes, quotas, non-tariff barriers, labeling standards, no mutual recognition, strict quality control, and phytosanitary conditions.
Tariffs
A tariff is a duty or a tax on the product sold as it crosses national borders levied by the government of a country. If tariffs are abolished, specialization is increased, and economies of scale profit (Fetzer & Schwarz, 2021). Amazon, due to the removal of tariffs in most countries to enhance international trade, has experienced various benefits, which include customer base growth, access to new suppliers, creation of new business partners, and new branches in those countries, which leads to more profit (Richards et al., 2020).
According to the data below, it is clear that Amazon is affected negatively by tariff factors (Xu & Lee, 2019). The US levied tariffs of 15 percent on products imported into the United States by $112 billion in September (Fuchs et al., 2019). The study predicts that prices for products sold across the US to cover the expense of the new tariffs could increase by an average of 2.1% to 2.6% in the United States.
Improvements in transportation networks
Improvements in transportation networks mean that the modes of transportation have been enhanced to enhance efficiency when conducting international trade (Evert, 2019). Examples of these improvements include containerization, warehousing, various improvements in ports, the use of jumbo jets and special ships, sea and rail corridors, and the use of global positioning systems. Containerization, when it comes to customers, contributes significantly to the improved security of the purchased item (Skender, Zaninović, and Srića, 2019). Suppliers are more satisfied with the portability of the products outlined, as commonly accepted requirements for transportation allow for agility and efficiency (Gandhi, 2019).
Moreover, business partners are generally satisfied with the financial benefits they acquire in terms of containerization. When speaking of Amazon, it is of paramount importance to outline the scopes of the company’s success driven by shipment innovation (Hahn, Kim, and Youn, 2018). Thus, containerization helps the company be more trustworthy in terms of shipment, as the products within containers are generally isolated from public access prior to the delivery.
Warehousing
Warehousing can be defined as the act of confining goods in one place before their distribution and selling are done on a later day. Through warehousing, customer growth has been experienced since goods can reach them at any required time, more branches are opened, and also new business partners can emerge (Binos, Adamopoulos & Bruno, 2020). Amazon has different warehouses in different parts of the world, and these warehouses have brought many business benefits (Shnayder, 2017).
Ten years on from the founding of Amazon, the annual sales reached below 7 billion dollars in 2004. Statista reported sales of nearly $233 billion by 2018 (Shnayder, 2017). Due to the use of warehousing in the last decade, the amount of cargo being dealt with daily has increased, and, therefore, the profits made by Amazon have been increasing significantly (Laber, Thamma & Kirby). The amount of overseas suppliers has improved, and the number of Amazon’s countries and customers has developed. The use of air transport has also been considered by many companies due to its high speed and convenience. For instance, unlike road transportation, the air cargo system does not experience physical barriers, making its rapidity to be vital.
Launching a Product in a New Overseas Territory
Considerations on an adaptation or standardization approach to the marketing mix for the product launch in South Africa
Customer Orientation
The most important factor influencing the exporting firm’s decision in favor of product standardization and adaptation is customer orientation, i.e., the customer’s response to the product in the new country.
Stage of Market Development
Another factor affecting the firm’s decision in favor of standardization or adaptation is the stage of market development.
Legal Considerations can also be considered, whereby Amazon can focus on policies in South Africa, which can impact its operations
The number of countries have specified product, packaging, and labeling standards for certain commodities.
Climate Conditions and Physical Environment
Product decisions are also influenced by climatic conditions and the physical environment of foreign countries. The physical environment consists of a hot or cold climate, plains or hilly areas, a living environment in the home, etc.
Considerations to support decision-making with regard to each element of the marketing mix in relation to the launch of the product in South Africa
Standardization is the process of establishing guidelines that direct the establishment of a product or service based on the agreement of all the parties involved in the industry.
The adaptation of a product is a process of changing a product in a market other than the market in which it is produced to meet customers’ needs.
Demographic Factors
Demographic factors include factors like age distribution, gender ratio, religion, and language spoken to determine whether the best approach for an investor is either adaptation or standardization. Whenever there are several demographic differences between the home and the host country, then the approach to go by is an adaptation (Patel et al., 2017). In this case, the diversity of the people, tastes, and preferences are also expanded. Therefore, providing similar products will not work well for the investors.
On the other hand, if there are many similarities in the spread of the demographic factors, then an investor should opt for standardization.
Gender ratio
The gender ratio is a demographic factor that determines the best approach that an investor should take when it comes to choosing the best market approach to go by, either product adaptation or standardization. In the case of cosmetics, having more female customers would be suitable for the supply of the goods. Typically, companies focus on the need for products to ensure that they increase their sales. (Lubis, 2018). Consequently, in South Africa, which is the host country, the female population is bigger. Therefore, the best approach to go by is standardization would involve supplying more cosmetics to meet the customer needs.
In the US, the home country, the male population is higher, and supplies of cosmetics will not be on-demand compared to South Africa. In such a case, then, an investor should always opt for product adaptation (Lea, 2018). Thus, since the population of men is high, supplies of products that favor men should be adapted.
Culture
Cultural differences are very evident between South Africa and the US. In matters concerning food, in the US, people are free to eat any kind of amphibian category of vertebrates. Some people in the US even go to the extent of eating scorpions. In South Africa, the case is different (Wayne, 2018). Therefore, when supplying goods as an investor, this is a factor of consideration. In case there is a limited supply of amphibians as food material in the US, then any investor should go for standardization.
Key considerations for each of the marketing mix variables
Products, promotions, places, and distribution have been analyzed in businesses. In this case, Amazon can focus on the different ways that products can be used to attract buyers in South Africa. Promotions using social media and advertisements on TV channels can be implemented. However, cultural values should be considered since different regions have diverse beliefs that can impact business procedures. Created by Geert Hofstede, Hofstede’s Theory of the Cultural Dimensions is a tool used to explain cultural differences across countries and distinguish how business takes place across cultures (Huang & Crotts, 2019).
Hofstede identified six categories that define culture:
- Power Distance Index
- Collectivism vs. Individualism
- Uncertainty Avoidance Index
- Femininity vs. Masculinity
- Short-Term vs. Long-Term Orientation (Andrijauskienė and Dumčiuvienė, 2017)
- Restraint vs. Indulgence
The Significance of International Trade Blocs, Economic Cooperation and Intergovernmental Bodies in Supporting the International Trading Activities of the Amazon Organization
A Customs Union is a two- or more adjacent countries’ agreement on the removal, reduction, or abolition of trade barriers (Eralp, 2018). There are various characteristics of custom unions that have been analyzed when focusing on businesses (Tubanova, 2018). One of the aspects is that they eliminate export and import barriers for goods and services among the Member States. Another factor is the collection of unitary foreign policy, and trade tariffs with non-members should be accepted. European Union (EU) is also involved in custom unions and has 28 country members.
The US, as the home country for Amazon, forms a customs union with the European Union, one of the largest customs unions in the world. The union formed is known as JCCC, or the Joint Customs Co-operation Committee (EU, n.d.). The advantages of such a union generally include an increase in trade flows, diversity, and a reduction in trade deflection (CFI, n.d.). The customers were obtained through the facilitated means of product delivery between the US and the EU, one of the most financially beneficial areas in terms of trade.
One of the reasons why a customs union is preferred by an FTA is that it solves the trade deflection issue. In this case, the aspect happens when a Non-Member State sells its products to a low-tariff FTA country and then resells them to a high-tariff FTA republic, leading to commercial distortion. In customs unions, the existence of a similar outside tariff helps to prevent problems arising from differences in tariffs.
Why are custom unions stronger than FTA?
Increase the recognition of products, services, and well-being of individuals. Offer freedom, security, and justice without internal borders (Ersayin, 2019). Sustainable development is based on balanced economic growth and price stability. This is going to positively benefit Amazon by attracting more people into the business.
Common Market
A common market may be defined as a free market area that is deprived of various economic burdens for the sake of free trade. Frequently, the notion of a common market is perceived as equivalent to the European Economic Community. When it comes to Amazon as a company, European Economic Entity has regarded the company as one of the major stakeholders in terms of international trade. However, currently, Amazon is believed to exercise its authority in a way that puts other representatives in the market in a vulnerable position because Amazon uses third-party data to anticipate its marketing strategy (EU, 2020).
Economic Union
The economic union involves the distribution of goods, services, resources, and workers across borders between two or more countries.
Characteristics of Economic Union
The free distribution of goods and resources and employees across all borders of the member states (capital and labor).
All members follow a common policy package when trading with non-members.
Members create general institutions and economic policies for labor unions.
Economic unions include monetary and fiscal policy. The Member States shall arrange and harmonize policies on government, taxation, and expenditure.
- Union of South American Nations (USAN)
- Advantages
- In the Member States, more investment flows.
- Taxes between the Member States are consistent.
- Staff are free to select their responsibilities in the Member States.
The integration of market economies, finance, and common economic policies plays a significant role in the economic unions becoming the world’s new economic powers.
The economic union is better than that of the single market because common markets allow labor, capital, and other productive resources to move freely through the reduction or elimination of good internal tariffs and the setting of common external tariffs (Kangami & Akinkugbe, 2019). Economic unions coordinate their Member States’ domestic economic policies closely.
Amazon benefits from economic unions in the US since, due to these economic unions in the country, more investment will flow into the country (Pruthi et al., 2020). Since Amazon is in the US, it will benefit from these investments either way.
Amazon workers are able to choose the country from which they are going to work best. Workers are flexible to work in any of the member countries.
Disadvantages of Economic Unions
The prices of land and land have risen. Cheap land and property between the Member States are sought by investors (Kangami & Akinkugbe, 2019). They do this conveniently due to the free flow of money.
The question of regulatory standardization is always difficult, and each member must comply with common standards.
Internal economic interests also lead to unequal treatment between members. Members of a larger economy could be more influential in decision-making and policy-making.
The economic dependence is lost since Member States’ economic policies must comply with a mutual agreement (Kerikmäe et al., 2018). And their business history does not suit.
The brain drain is regional. Higher-educated individuals leave home in the other Member States to seek better chances.
International firms are rapidly expanding the Member States’ markets. This decreases the opportunities for smaller domestic firms to develop.
One member’s crisis can impact others since it could lead to an even greater disaster, which can impact the world economies (Filip, 2017).
These Economic Unions in the US have led to Amazon facing competition from other member countries.
In the Future, USAN wants to include more members and improve its policies to make trading within the member countries as easy as possible.
Intergovernmental Trade Bodies
World Trade Organization has a major impact since its main function is to liberalize trade. Moreover, it ensures that trade is carried out effectively.
One hundred fifty-nine countries presently belong to WTO.
Benefits of WTO Membership
- Involvement in the adoption of new international trade laws and standards.
- Export diversification (Lubis, 2018).
- The investment regime is transparent, predictable, and attractive.
- Increased ratings for sovereign credit.
- Reinforcement of trade conflict positions
Intellectual property rights protection strengthens the positions of the countries in case a member country is involved in a trade dispute (Richards et al., 2020). In the cases where Amazon has been involved in various disputes with other countries and other companies that are members of WTO, resolving the conflict has been easy for Amazon.
A transparent, predictable, and attractive investment regime has benefited Amazon in various ways. Amazon can predict how an investment is going to go by in a certain country (Lubis, 2018). There is a consistency of events and transparency (Richards et al., 2020). The country’s regulations and policies are in favor of the progress of the investments (Fetzer & Schwarz, 2021).
Disadvantages
Some of the disadvantages are that more than developing countries, developed nations profit from free trade, diversification, failure to reduce tariffs on agriculture, and another demerit is that free trade ignores cultural and social factors. Some people have also claimed that the WTO is criticized for being undemocratic.
Slow progress
Due to the slow progress of the member countries, Amazon is affected negatively. These member countries have slow progress since they have to accommodate all the countries, even the ones that are underdeveloped. The US is already a developed country, and therefore, the impact of its members is more on being dragged behind.
Organizational for Economic Co-operation and Development (OECD)
The OECD is an international organization that focuses on policies that ensure that better lives are achieved (Fetzer & Schwarz, 2021). The goal is to shape policies that foster prosperity, equality, opportunity, and well-being for all.
The organization has 36 members.
Benefits of Organizational for Economic Co-operation and Development
Continuous improvement: Companies that engage in organizational development commit to continually improving their business and offerings (Richards et al., 2020).
- Increased communication.
- Employee development.
- Product & service enhancement is a common benefit of organizational development. (Lubis, 2018).
- Increased profit.
Increased profit
Amazon can make more than usual profits courtesy of the US membership in Organizational for Economic Co-operation and Development. This is because several countries have come together to foresee developments of each other. This enables the companies in these countries to make more profits, and Amazon is one of these countries.
Disadvantages
Does not have the ability to make or enforce rules over its members
Relies on negotiation and consensus in order to influence governments.
One of the disadvantages that impact Amazon negatively is that in order for the US. The government, to make any decision has to rely on the negotiation with other member countries.
Organization of Petroleum Export Countries
OPEC could be defined as an organization that plays a significant role in the process of coordination and unification of petroleum policies in terms of global petroleum consumption and trade. Amazon, while relying on OPEC in terms of oil and gas prices that contribute to the specifics of transportation, places a goal to become a climate-neutral company by the year 2020 (Novet and Palmer, 2020). For this reason, it may be concluded that while depending on the oil supply prices in the nearest future, Amazon is not willing to follow the patterns set by the organization, as it acts in order to become less dependent on the aforementioned industry.
The Factors That Could Create Exchange Rate Volatility and the Impact of Such Volatility on the Performance of the Amazon Organization
Currency fluctuation
Currency fluctuation involves changes in the exchange rate.
Typically, it entails a floating exchange rate system in which no official currency value is maintained. Currency appreciation is an increase that is the opposite of currency depreciation, whereby a nation’s cash advances its value.
Depreciation
In the case where the currency of the dollar depreciates relative to other currencies, Amazon would be impacted negatively by this depreciation (Stasiak, 2017). It would end up making fewer profits or even losses. The exports would become less cheap. Compared to the price of the export before the depreciation had occurred, the price will have to reduce (Hofmann et al., 2021). Generally, currency depreciation cannot work for the good of any company but instead affects almost all the companies negatively.
As long as the economy is thriving, the chances of currency depreciation are low unless the government does the unthinkable thing and goes on to print more currency (Gopinath et al., 2020). In the case of Amazon, the company should enhance diversification in its attempts to evade such fluctuations. When the company has branches in various countries of the world, even when currency fluctuation occurs in the US, the company’s stability will not be affected that much (Cravino, 2017). Branches in the US will be affected by the currency fluctuation, but other branches elsewhere will stand in that gap and stabilize the company.
Global supply and demand shock
Global supply chains are networks used for the procurement and delivery of products across many continents and countries. The movement of knowledge, processes, and services around the world is part of the global supply chain.
A shock in demand is a sudden unforeseen occurrence, normally temporarily increasing or decreasing the demand for a product or service. A positive shock to demand is a sharp increase in the demand, whereas a shock to demand is a drop.
Political and Economic Instability
Due to the pandemic, global supply chains have been disrupted. Cessation of movements affected everything, although things are almost resuming normalcy (Hofmann et al., 2021). Every country is a victim in this case; therefore, exchange rates were never altered due to the pandemic.
The global financial crisis of 2009
In the US, the stock market collapsed, and between the end of 2007 and 2009, almost $8 billion worth was wasted. In October 2009, unemployment peaked at 10%. The exchange rates went against the US since it was the country that was affected more than any other (Cravino, 2017).
Amazon’s home country is the United States and has been impacted negatively by the exchange rate changes. A great depression had its biggest impact on the economy of the US, therefore, affecting the companies located there negatively. In the case of Amazon, the company should enhance diversification in its attempts to evade such fluctuations (Stasiak, 2017). When the company has branches in various countries of the world, even when changes in exchange rates occur in the US, the company’s stability will not be affected that much.
Branches in the US will be affected by the currency fluctuation, but other branches elsewhere will stand in that gap and stabilize the company. Other factors that can help mitigate the dangers of such situations include; risk transfer, risk adaptation, and risk avoidance. Amazon has largely invested in diversification. The company has established branches almost in every part of the world. It is a worldwide company, and therefore it is safe (Gopinath et al., 2020). Also, Amazon works from very many other companies, and therefore in the case one of its partners in business is affected, this will not affect Amazon much. Amazon will remain stable.
Risk mitigation strategies shall be designed to eliminate, reduce or control, before any injury, the impact of known risks that are intrinsic to a given business (Gopinath et al., 2020). Risks can be predicted and addressed using these methods. Amazon deals with risk control through huge savings, which is a strategy that can be applied. Another strategy may involve forecasting the future trade market and developing ways of limiting poor business performance.
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