When any prospective business is considering entering into a new market whether it is domestic or international must conduct a risk analysis in order to ascertain whether the target market that they are considering entering is in fact worthwhile for their business and will generate a profit, (Conklin, D., 2002). This risk analysis is calculated through analyzing several factors that are relating to the market that the company is considering entering. The risk analysis factors are: government, financial, commercial, industrial, shipping, and logistics, (Conklin, D., 2002). An ideal example to test this framework on would be if Amazon decided that it wanted to go to China.
Amazon is a great example of this because it has many risks upon entering the Chinese market and the chief risk is the competition sector of the risk analysis. The reason for this is that Amazon has an enormous competitor of similar services in China called Allibaba. Allibaba has become one of the largest online retailers in Asia and the Middle East. Allibaba is even testing the waters for coming to the United States, thus, Amazon is going to have to tread on this idea carefully of entering China because there is already a competitor with an established presence in the region. Amazon’s market entry strategy is going to have to be flawless and with as little risk as possible in order to compete.
Pertaining to finances, Amazon is one of the most successful countries in the world. With over billions of transactions daily worldwide, Amazon is surely a leader in the industry, (Amazon.com, Inc., 2016). Thus, the financial backing will not be an issue in getting them to China. What is going to be Amazon’s financial risk is staying in China and whether it is economically feasible with the intense competition.
Another key component of Amazon’s risk when going to China is the shipping and logistics issue. The reason for this is that Amazon is going to have to setup some form of logistics center within China, which would be a major foreign direct investment to undertake for their business if the operations in China do not end up being successful, (Amazon.com, Inc., 2016). The other issue pertaining to shipping and logistics is where the products will be coming from that will be prospectively sold online in China. The reason that this is such an issue for Amazon’s business model is that a great portion of their business is customer based selling, (Amazon.com, Inc., 2016). This is why shipping and logistics is an issue that is going to have to be dealt with given that the packages could potentially be sent from China all over the world and vice versa, (Amazon.com, Inc., 2016).
Government is always a complicated issue when considering bringing a prospective business to China. China has a communist government, which could present issues to American companies trying to start up operations. Additionally, many laws in China only allow a business to exist if a certain number of the partners are Chinese. Thus, it is critical for those in business in China to take this into consideration for their operations if they are planning on setting up shop in China. Amazon will also have to be careful because, according to their business model, a great deal of their transactions do involve shipping and shipping that will take place across international borders, (Amazon.com, Inc., 2016).
With regards to commercial and industrial, there are many prospective issues that are present in Amazon for China and many pertain to the language barrier and cultural practice of business. In order for Amazon to properly establish themselves there, they are going to have to be quite careful in their efforts to plan every single detail in order to mitigate cultural misunderstandings. For industrial, a decision will have to be made about office space and/or a shipping and logistics center. Amazon will prospectively have to decide if this venture in China would be viable to their existing successful business model or whether it would not be worthwhile for their business strategy in the long run. That being said, should Amazon want to give China a go, they are absolutely capable of doing so.
Amazon.com Inc. (2016). Reuters. Retrieved from: http://www.reuters.com/finance/stocks/companyProfile?symbol=AMZN.O
Conklin, D. (2002). Analyzing and Managing Country Risks. Ivey Business Journal. Retrieved from: http://iveybusinessjournal.com/publication/analyzing-and-managing-country-risks/.