Amazon is an online retail company popular in the West. In 2019, it sought to expand into the UK courier system (Galloway 2019). The courier and express delivery market in the country is estimated at 12.6 billion dollars a year. The program, named Shipping with Amazon, allows the company to act like a normal courier (Galloway 2019). According to company officials, the service office same-day deliveries. Amazon is experienced in delivering parcels and can compete with companies like Hermes, UPD, FedEx, and the government-backed Royal Mail (Ochel & Wegner 2019). The company plans to expand its network of warehouses, allowing retailers to keep stock in there to increase the speed of delivery. The purpose of this paper is to analyze the motivations, market conditions, and the capacity of Amazon to establish itself as a new leader of courier deliveries, using Firm theory.
Market Structure
The firm theory states that all companies seek to maximize their profits while reducing their costs as much as possible (Ward & Begg 2016). This could be achieved in a variety of ways. One way of maximizing is by increasing sales volumes. It allows the company to sell in bulk, reducing costs and expanding market share. Amazon is an online retailer that has been offering delivery services since 2002 (Galloway 2019). Premium 2-day shipping with Amazon Prime available in the US for a yearly subscription of 75$ (Galloway 2019). The company plans to implement the same system in Europe and the UK. Therefore, they are already investing in elements that are associated with courier work.
Amazon is already hiring personnel, trucks, installing package location systems, and setting up warehouses to store goods. These investments accommodate only the customers of Amazon. Lack of scope increases the overall costs of online purchasing, which has to compensate the company for the deliveries. Therefore, expanding the reach of an already established delivery system to include more customers helps produce more profit per dollar invested. Amazon is looking to achieve diversified growth (Ward & Begg 2016).
UK’s market for deliveries is dominated by large companies, such as DPD, FedEx, USP, Hermes, and Royal Mail (Ochel & Wegner 2019). According to the theory of oligopoly, smaller companies cannot compete with larger ones. Inter-state deliveries require scope and volume (Na 2015). Larger companies can afford to produce, service, and deliver in bulk, which is something that smaller companies cannot do (Na 2015). As such, inter-city shipping in the UK is conducted largely by these entities. Local delivery services never go outside their respective city areas.
The market demand for mail and delivery services in the UK is highly elastic (Ward & Begg 2016). Companies that deliver goods are very similar to one another. Speed, safety, and price range are the primary grading criteria used by customers.
Necessity, duration, price, and the availability of substitutes are the primary criteria for market elasticity (Ward & Begg 2016). The service responds positively to all of these criteria. This leaves Amazon with plenty of room to compete in. If they offer a superior service – there is no reason for customers to avoid them.
The primary competitors, as already mentioned, are DPD, FedEx, USP, Hermes, and Royal Mail. Each has their respective strengths and weaknesses. In terms of speed and quality of service, DPD is the primary competitor (Ochel & Wegner 2019). They offer same-day shipping and are already established in the UK. However, they are not as large as other services. FedEx and USP are both foreign companies that have a famous brand name (Ochel & Wegner 2019). They also have significant experience and resources to draw upon to expand their scope in the UK. Hermes is a domestic private company with a long history of serving the local market. The Royal Mail is a government-funded postal service that can afford to work at a deficit, making it the cheapest delivery option (Ochel & Wegner 2019). At the same time, the inefficiency of government-controlled bureaucracy makes it the slowest service. Amazon will have to compete with these companies in order to establish dominance.
Long-Term and Short-Term Predictions for Amazon in the UK
In terms of capacity, Amazon is on par with the majority of its competitors, such as FedEx, DPD, and USP. It has significant financial resources to draw from. At the same time, it has experience of setting up competent delivery systems in a country much larger than the UK. In terms of organizational performance, the company is very competent. At the same time, Amazon is a primarily US-based company. Out of 232 billion dollars of revenue earned in 2018, only 65 were earned internationally (Galloway 2019). The company is not experienced as the rest in the UK market. Finding reliable suppliers, employees, and customers while maintaining adequate delivery costs would be hard.
The prediction for the short-term scale would be that Amazon would not be able to change the face of the delivery market, as many articles state. UK market is already saturated with large companies offering similar services (Ochel & Wegner 2019). To carve oneself a piece of the market share, Amazon would have to be better. During this time period, it is likely for Shipping with Amazon to work at a deficit for the company. Until the economy of scale is achieved, the expanded capacity for delivery will not be in full use (Ward & Begg 2016). Amazon’s brand name alone will not sway customers to switch from familiar systems. Establishing a country-wide delivery network also is going to take time and investment.
Another reason why Amazon will not be able to completely dominate the UK market is that it failed to do so back in the US. Despite being a very popular service, it failed to dislodge UPS and FedEx from its positions. This falls in line with the oligopoly theory of markets (Na 2015). It states that unless a company could come up with a product or a service drastically different and better compared to the competition, it will not be able to push them out of business (Na 2015). There were instances of that happening in other industries. The invention and popularization of personal computers made typewriters obsolete. At the same time, Apple’s iPhone brought down Nokia. Amazon does not have anything that would significantly change the game in the parcel delivery sector (Galloway 2019). Any innovations they would come up with would likely be copied to maintain competition.
In the long-term perspective, it is possible for Amazon to establish itself as one of the major delivery systems in the UK. They are likely to take a certain percentage of market share from the Royal Mail, Hermes, and other companies, disgruntled with the present status quo in one way or another. The high quality of service associated with Amazon may win them additional support. Amazon launched its expansion at the same time Royal Mail employees went on strike (Ochel & Wegner 2019). It made their short-term goals more achievable. Ultimately, while Amazon is likely to achieve its economy of scale, but fails to dominate the market.
Another potential benefit of Amazon’s business diversification is the acquiring of customer data from shipments. According to Customer theory, the company that better knows the needs of its costumers can predict and allocate its resources accordingly to best suit their needs (Haugtvedt et al. 2018). The result is a better and more personalized service. Customers respond well to such behavior, which promises increased brand loyalty and market share. Amazon is notorious for utilizing Big Data in its project. The mailing service would help the company understand the market better and help expand into the online service segment in the UK and into the rest of Europe.
Conclusions
Amazon’s expansion into the courier business in the UK makes sense based on Firm theory and the idea of economy of scale. It will help the company generate more revenue from the long-term perspective. The prerequisites for the expansion include the already-established courier network, the possession of a famous brand name, and the resources required to make it happen. A large potential boon for Amazon includes tapping into customer data to improve its services in accordance with Customer theory.
Amazon will not be able to dislodge its competition from the field. UK’s courier and delivery markets are already dominated by large corporations. The company will not be able to revolutionize the industry to make the already-established companies irrelevant. It will be able to carve itself a piece of the 12.6 billion-dollar market and force the potential growth of service quality from its competitors. In the short-term perspective, Amazon is likely to lose more than gain, as it will take time to establish customer trust and make them prefer the proposed system over what is already available. This development is predicted by customer theory, which states that the majority of people will stay with the familiar brand unless the benefits of a new one are too enticing to ignore. From a Firm theory perspective, these expenditures are justified. The economy of scale, in the long-term perspective, is likely to make up for the losses.