Challenges of Expansion to a Foreign Location

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Pryrfgr1990

Economics

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Purpose of Assignment

This week students will review and revise their Week 3 Research Analysis for Business Signature Assignment based on economic analysis and the feedback provided by their facilitator. Students will also expand their Week 3 analyses to evaluate the challenges of expanding their chosen company's production to a foreign market.

About Your Signature Assignment

This signature assignment is designed to align with specific program student learning outcome(s) in your program. Program Student Learning Outcomes are broad statements that describe what students should know and be able to do upon completion of their degree. The signature assignments might be graded with an automated rubric that allows the University to collect data that can be aggregated across a location or college/school and used for program improvements.

Assignment Steps

Resources: Tutorial help on Excel® and Word functions can be found on the Microsoft® Office website. There are also additional tutorials via the web offering support for Office products.

Revise your Week 3 assignment, Research Analysis for Business, using the feedback provided by your facilitator. This Week 6 report should only include one conclusion, so you will need to rewrite the conclusion you included in your Week 3 assignment, Research Analysis for Business.

Select a foreign market in which to expand your chosen product. If you wish, you may use one of the countries your team analyzed in their Week 5 Comparative and Absolute Advantage Assignment.

Prepare a minimum1,750-word report addressing the points listed below. The use of tables and/or charts to display economic data over the time period discussed is highly encouraged, you may submit any economic data in Microsoft® Excel® format in a separate file. You may use the U.S. Department of Labor's Bureau of Labor Statistics (BLS), U.S. Dept. of Commerce's Bureau of Economic Analysis (BEA), the Federal Reserve of St. Louis's FRED data, the CIA World Fact Book, World Bank data, and World Trade Organization, or other appropriate sources you might find on the Internet or in the University Library. The new sections of your report should:

  • Evaluate current global economic conditions and their effects on macroeconomic indicators in your selected country. Provide forecasts for population growth, gross domestic product (GDP) growth, GDP per capita growth, export growth, and sales growth.
  • Evaluate any competitors' existing production in the chosen country.
  • Assess sales forecasts in the selected country by using the Federal Reserve of St. Louis's FRED data, the CIA World Fact Book, World Bank data, World Trade Organization, or other appropriate sources you might find on the Internet or in the University Library.
  • Categorize the type of economy that exists in your selected country as closed, mixed, or market. What is the difference between these types of economies and how might this affect your expansion?
  • Assess how your chosen country's current credit market conditions, especially interest rates and the availability of financing, affect demand for your product or service and your planning or operating decision for your production in that country.
  • Analyze the role of the selected country's central bank on that country's economy.
  • Compare the availability, education, and job skills of the work force in the selected country. Discuss any additional challenges of international production, such as political stability, availability of government financing or other incentives, threat of capital controls, and exchange rate risks.
  • Explain any additional supply chain challenges you anticipate if attempting to make your product in your chosen country and selling the product in other countries.
  • Based on the data gathered and analysis performed for this report write a conclusion in which you:
    • Create business strategies, including price and non-price strategies, based on your market structure to ensure the market share and potential market expansions and explore global opportunities for your business in a dynamic business environment and provide recommendations.
    • Develop a recommendation for how the firm can manage its future production by synthesizing the macroeconomic and microeconomic data presented.
    • Propose how the firm's position within the market and among its competitors will allow it to take your recommended action.
    • Recommend strategies for the firm to sustain its success going forward by evaluating the findings from demand trends, price elasticity, current stage of the business cycle, and government.
    • Recommend any comparative advantages your company will have over competitors currently operating in that country, and defend your position, either for or against, expanding your company's production into your chosen country based on your research.

Integrate with the Week 3 Individual Assignment, and incorporate corrections and suggestions from the instructor's feedback. The final report should be a minimum of 2,800 words.

Cite a minimum of three peer reviewed sources not including the textbook.

Include all peer-reviewed references and government economic data sources/references from Week 3.

Format your assignment consistent with APA guidelines.

User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.

Explanation & Answer

Kindly see attached:1. The report on the challenges of the expansion of Amazon into China2. The integrated report resulting from the merge of this new one with that of week 33. The corresponding plagiarism reports in case you need to upload them

Running head: CHALLENGES OF AMAZON’S EXPANSION TO CHINA

CHALLENGES OF AMAZON’S EXPANSION TO CHINA
(NAME)
(COURSE)
(DATE)

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CHALLENGES OF AMAZON’S EXPANSION TO CHINA

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Table of contents
Introduction................................................................................................................................................... 3
Global economic conditions and their impact on the Chinese macroeconomic indicators .......................... 4
Forecast of the main macroeconomic indicators of the Chinese economy ............................................... 5
Amazon’s sales forecast and main competitors in the Chinese market ........................................................ 5
Analysis of the current market trends in China ............................................................................................ 6
Impact of the Chinese current credit market conditions on the demand for Amazon products .................... 7
Role of the People’s Bank of China on the country’s economy .................................................................... 8
Main challenges regarding the availability of workforce and supply chain management ........................... 9
Conclusions ................................................................................................................................................. 10
Works cited.................................................................................................................................................. 12

CHALLENGES OF AMAZON’S EXPANSION TO CHINA

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Introduction
One of the most challenging opportunities of a company is that of expanding into a new
foreign market. Such challenges arise both from the existing cultural differences between the
home country and the foreign one and the different legislation existing in the new country, with
which the company must comply. In this regard, expansion into the emerging countries like
China is generally considered a highly attractive opportunity for most American companies due
to the high population in such countries. However, expansion into the Chinese market is highly
challenging for these companies considering the dramatically different cultures and the
restrictions established by the Chinese government.
Taking this into account, the objective of the present report is that of analyzing the
different challenges faced by Amazon when it planned its expansion into the Chinese market. In
this regard, it was important that the managers of the company adapted their business plan
according to this analysis when Amazon China started operating for the first time in order for
this division unit to be profitable for the company. Furthermore, they have to continuously revise
this information in order to design an adequate strategy to compete with Alibaba and JD, which
currently account for the 90% of the Chinese retail industry (Parker, 2016).
The report analyzes the characteristics of the Chinese market and the most relevant
competitors for Amazon. It also reviews the different macroeconomic data of China with special
attention focused at the analysis of the different indicators that determine the current economic
condition of the country in order to establish different recommendations that would potentially
facilitate the expansion plan into the Chinese market. Finally, aspects such as the prospected
sales and the available Chinese workforce are taken into account.

CHALLENGES OF AMAZON’S EXPANSION TO CHINA

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Global economic conditions and their impact on the Chinese macroeconomic indicators
In the last decades, the Chinese government implemented a series of financial reforms
that led to a more progressive approach to business. These reforms significantly increased the
efficiency gain of the companies operating in China, hence increasing the country’s gross
domestic product (The World Factbook: China, 2017). Additionally, the beginning of the 21st
century showed a strong yuan, which valued itself more than 20% against the US dollar,
indicating the increasing strength of the Chinese economy in respect to the global market. In this
regard, even while the exchange rate had remained more or less secured, the liberalization
adopted by the Chinese government after the financial crisis of 2010 resulted in a further
increase of the Chinese economy compared to that of other developed countries.
The Chinese economy has successfully managed several challenges that resulted in the
decrease in both the domestic savings rate due to the low domestic consumptions and the
corporate debt, as well as in the increase of the employment rate. In this regard, a more efficient
budged allocation in Chinese companies enabled them to increase the wage offered to its staff
while maintaining their competitiveness both in the domestic and in the foreign markets (The
World Factbook: China, 2017).
Taking the above into account, China’s economy grew slowly but steadily in the last
decades, such that it has now become the second largest economy in the world. Furthermore, the
gap with the US economy continues to decrease, and it can be forecasted that, if things remain at
the current pace, it will become the leading economy in the world in the next decades due to their
increasing role in the global economy (The World Bank, 2016).
Finally, it should be noted that despite the fact that China continues to be a communist
country, the economy has shifted towards a market-based economy, where manufacturing and

CHALLENGES OF AMAZON’S EXPANSION TO CHINA

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production is no longer controlled by the government as had happened in the past, and Chinese
citizens are generally free to choose the company they want to work for (Gale, 2011).
Forecast of the main macroeconomic indicators of the Chinese economy
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The Chinese gross domestic product (GDP) is expected to continue increasing as had
done in the last decades. However, the rate of such increase is expected to become slower
as the economy continues to grow (Haltmaier, 2013)

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The current population of 1.3 billion people is expected to decrease due to both the severe
restrictions on natality put in place by the Chinese government and the more active role
played by women workers (Haltmaier, 2013).

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As a result of the increased GDP and the decreased population, the GDP per capita will
continue to increase. It can be expected that it will increase to a level close to that of
developed countries.

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If current trends are maintained, exports and sales will increase significantly in the next
decades. In this regard, exports had increased by a 15% annually in the last decade
(FRED, 2017).

Amazon’s sales forecast and main competitors in the Chinese market
According to the information provided in Amazon’s latest annual financial report, net
international sales have experienced a significant increase from 2014 on (Amazon, 2017). Taking
this into account, it is expected that sales in the Chinese market will continue to increase in the
near future, especially considering the good acceptance that Amazon’s products seem to have in
the Chinese market in the last year. In this regard, a survey carried out by Parker (2016)
indicated an increase in sales for Amazon China of 600% from 2014 to 2015. However, the
company still has to develop an efficient strategy to be able of significantly competing with

CHALLENGES OF AMAZON’S EXPANSION TO CHINA

Alibaba’s Tmall and JD, which account for around 90% of the retail Chinese market industry
(Figure 1).

Figure 1. Main competitors of Amazon in the Chinese market. Retrieved from Parker (2016)

Analysis of the current market trends in China
Three different economy models can be described when analyzing the economy in the
different parts of the world:
-

The first economic model is the traditional economy, where people within a family work
on the same job generation after generation. This model is classical of underdeveloped
countries and is characterized by the fact that most jobs lie in the primary sector of the
economy such as the agricultural production.

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CHALLENGES OF AMAZON’S EXPANSION TO CHINA

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The second economy model is the command economy, characteristic of communist
countries. It is characterized by the fact that the government has the final decision on
what is being produced and how much is being produced by the different companies.
Furthermore, in this model the workers don’t generally get to choose in what they want to
work, but are rather commanded to work on some specific job according to the
government needs.

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The third economy model is based on the market economy. This model, characteristic of
developed capitalist countries, is based on the free-market, when the company managers
get to decide upon what and how much to produce and workers can freely choose the
work they’d like to perform.
Taking the above description into account, it should be noted that despite being a

communist country, China’s economy is changing from a commanded economy to a market
economy. In this regard, 58% of the Chinese companies were able of independently choosing
their production levels in 2010 according to a report published by the Gale Group (2011). This
transition towards a market economy has enabled different American or European companies to
expand into the Chinese market due to the decreased restrictions of the Chinese government.
However, companies like Amazon wanting to expand into this market should bear in mind that
there are still several restrictions and very strict regulations in place that they need to comply
with.
Impact of the Chinese current credit market conditions on the demand for Amazon
products
The Chinese central bank increased interest rates a few months ago the third time after a
long time (CNBC, 2017). This policy was considered a few days after the parliament completed

CHALLENGES OF AMAZON’S EXPANSION TO CHINA

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their annual session; the leaders wanted the policy to take effect to tackle the increasing risks on
debts of the country. This increase in interest rates is expected to reduce financing to many
businesses in China including Amazon. Financing decreases due to the increasing costs of
acquiring loans from the financial institutions which is expected to decrease the level of
investment in the country.
However, the price of products in Amazon will increase as a result of an increase in the
price of financing the business. As the price of the products in Amazon increases, the supply of
money will decrease among the citizens of China and thus leading to decrease in demand for
goods in Amazon.
Looking at the situation in China, the government does not intend to control its debts only
but also the rate of inflation in the country. Inflation occurs when there is more money chasing
fewer goods and thus by increasing interest rates would reduce the supply of money in the
country thus reducing the rate of inflation.
Role of the People’s Bank of China on the country’s economy
Even while the role played by the Chinese central bank (PBC) on the country’s economy
had been rather limited so far due to the strict control of the communist government, the current
complex financial situation of the country has recently caused the movement to consider giving
the People’s Bank of China a key role in overseeing the country’s financial issues (Bloomberg
news, 2017). Through this measure, the Chinese government would try to decrease the threat that
a rapid credit growth in the country poses to its financial stability. Such decrease seems to be
impossible due to the lack of cooperation between the four currently regulating organisms:

CHALLENGES OF AMAZON’S EXPANSION TO CHINA

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People’s Bank of China, the China Banking Regulatory Commission, the China Securities
Regulatory Commission, and the China Insurance Regulatory Commission.
Main challenges regarding the availability of workforce and supply chain management
The main challenges faced by the company when recruiting the workforce to operate in
its Chinese market are related both to the fact that this workforce must have the necessary skills
to operate in a retail e-commerce shop and the cultural differences (Bardwell, 2017).
In this regard, it is of utmost importance that the managers of Amazon China are Chinese
people or have a strong background in the Chinese culture to understand both the specific needs
of the Chinese customers and prevent a cultural confrontation due to the big differences existing
between the American and the Chinese culture.
On the other hand, Amazon will most probably face several challenges related with its
supply chain management taking into account the current logistic model utilized by the company.
In this regard, it would be desirable that the products sold in the Chinese market are acquired
from local distributors to minimize both the shipping and the holding inventory costs. Taking
this into account, the company should consider the purchase of a welfare in China as soon as
possible.
Finally, it should be noted that distribution of Amazon products to some regions in China
might face an additional problem due to the lack of adequate transportation systems. A possible
solution to this problem would be the outsourcing of the distribution of Amazon products into
cities located in rural China regions. For this purpose, the managers of Amazon China could
have a look at Alibaba’s logistic model that enables the company to distribute its products to any
location within the Chinese borders.

CHALLENGES OF AMAZON’S EXPANSION TO CHINA

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Conclusions
Both the expansion experienced by the Chinese economy in the last decades and the shift
towards a free-market based economy are favorable to Amazon’s expansion plans into this
market. Furthermore, China is the most populated country in the world, representing nearly one
sixth of the total world population.
In order for such expansion to be successful, the company should find a solution to the
different challenges outlined in the present report, being the most important one the absence of
an adequate distribution system between some locations in China. In order to solve this issue, the
company should consider the outsourcing of the distribution system to a local transport fleet,
hence mimicking the successful Alibaba’s distribution system to rural areas in China.
Another important challenge that should be taken into account when considering the
expansion plans is the fact that the restrictions imposed by the Chinese government to the
establishment of American companies operating in the country. In this regard, Amazon should
form a joint venture with a Chinese retail company to be able of operating in the country. This
should however be seen as an opportunity, as it might enable Amazon of profiting from the
Chinese company’s logistics, hence solving the problem outlined previously.
The company should finally take into account the important differences existing between
the Chinese and American cultures, which might dramatically impact both the customer
relationship and the work relationships between staff members. In this regard, it is of utmost
importance that the workforce of Amazon China be formed primarily of Chinese people.
The two main competitors of Amazon, Alibaba and JD, are already well-established in
the Chinese retail industry, such that a strong opposition might be expected. However, and as had

CHALLENGES OF AMAZON’S EXPANSION TO CHINA

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happened in other markets, Amazon can benefit from its unique competitive advantages by
providing a higher product diversification. This strategy has proven highly efficient in competing
with Alibaba in the American market for decades, such that it can be expected that it will as well
work in the Chinese market.
Taking all the above into account, I would recommend the further expansion of Amazon
into the Chinese market.

CHALLENGES OF AMAZON’S EXPANSION TO CHINA

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Works cited
Amazon. (2017, April 12). 2016 Annual report. Retrieved August 26, 2017, from
http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-reportsannual

Beardwell, J., & Thompson, A. (2017). Human resource management a contemporary approach.
Harlow, England: Pearson.

Bloomberg news. (2017, July 10). China May Give Central Bank Key Role in Financial
Oversight. Retrieved August 25, 2017, from
https://www.bloomberg.com/news/articles/2017-07-11/china-is-said-to-mull-lead-rolefor-pboc-in-financial-oversight

CNBC. (2017, March 15). China raises short-term interest rates for 3rd time in as many months.
Retrieved August 26, 2017, from https://www.cnbc.com/2017/03/15/china-raises-shortterm-interest-rates-for-3rd-time-in-as-many-months.html

FRED. (19, August, 2017). Real Imports of Goods and Services (IMPGSCA). Economic
Research Federal Reserve Bank of St. Louis. Retrieved from
https://fred.stlouisfed.org/series/IMPGSCA

Gale (2011). "Economic Systems Overview." Gale Student Resources in Context. Student
Resources in Context, Retrieved August 26, 2017, from
http://galegroup.com/apps/doc/EJ2181500126/SUIC?u=clackesd&xid=970da16c

CHALLENGES OF AMAZON’S EXPANSION TO CHINA

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Haltmaier, J. (2013). Board of Governors of the Federal Reserve System. Retrieved from
https://www.federalreserve.gov/pubs/ifdp/2013/1072/ifdp1072.pdf

Mentzer, J. T. (2001). Supply chain management. Thousand Oaks: Sage.

Parker, T. (2016, February 2). Amazon Continues to Expand Its Exposure in China. Retrieved
August 25, 2017, from http://marketrealist.com/2016/02/amazon-continues-expandexposure-china/

The World Bank. (2016). Retrieved from http://www.worldbank.org/en/country/china/overview

The World Factbook: CHINA. (2017, August 02). Retrieved from
https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html


Running head: GLOBAL REPORT: AMAZON’S BUSINESS STRATEGY

GLOBAL REPORT: AMAZON’S BUSINESS STRATEGY
Name
Course
Instructor
Date

GLOBAL REPORT: AMAZON’S BUSINESS STRATEGY

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Contents
Introduction .................................................................................................................................................. 3
Market Structure........................................................................................................................................... 3
Global Marketers .......................................................................................................................................... 4
Barriers to Entry ............................................................................................................................................ 4
Trends in Current Macroeconomic Indicators for the Last Three Years ....................................................... 6
Analysis ......................................................................................................................................................... 6
Demand Trends ............................................................................................................................................. 7
Impact of the Sales on the Firm and the Industry ...................................................................


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