Study: Amazon's 2017 Entry Into Australia's Competitive Dynamics - Impact On Host Market (70 Characters)

How does digital MNE entry into developed markets impact the competitive dynamics in the host country: The case of Amazon's 2017entry into Australia.

Literature/Past Research Review

The primary aim of this study is to explore how digital MNE entry into a new market will impact local ompetitive dynamics, focusing on Amazon’s entry into the Australian market, launching November 24 2017. Although research has been conducted on entry strategies in International Business (IB), firm performance post entry and spillover impacts in terms of technology transfer and economic and employment benefits, there is scant research regarding the broader impact on host countries, in particular, the way in which the entry of digital MNEsimpacts local competitors. The research will adopt a post-positivist secondary qualitative approach, focusing on the case study of Amazon’s entry into Australia. The study will analyse secondary data obtained from sources such as media articles, discussion papers from Australian government websites and industry publications.

International Business (IB) research affirms that businesses grow through expansion beyond the borders (Han, 2016). Research shows that before making entry decisions, many factors are considered, such as potential returns (Al-Habash, Mmieh& Cleeve, 2015), and the ability to finance and establish the new business, in a context containing different market policies (Ayden, Demirbag & Tatoglu, 2017). Researchers have identified that making entry decisions regarding both country choice and choice of entry mode also requires proper understanding of market forces. According to Beleska-Spasova, Loykulnanta, and Nguyen, (2016), strategic planning is the primary ingredient in surviving unpredicted market forces. As described by Ayden, Demirbag and Tatoglu, (2017), a company needs a competitive advantage in each market that they operate. There are some dominant theories regarding the way in which international businesses expand, including the staged (Upsalla) model, and eclectic paradigm (OLI). According to Johanson and Vahlne, (1977),the Uppsala Model details sequential steps which are often taken by companies in their international expansion, expanding in both number of markets and operational commitment to these markets over time as they gain experience in the market and in internationalizing (Hodntt& Hsieh, 2012; Ito &Komoriya, 2015). According to the proposition of Uppsala, expansion should start in physically close markets (Jones, 2014). After continuous growth, the business can then seek more distant investment (Zekos, 2003). MNE’s can enter the market in either indirect or FDI modes (Rathert, 2016). According to Dunning’s (2001), eclectic paradigm (OLI) model suggests that businesses consider ownership, location, and internalisation advantages when making decisions about whether to enter a new market via a FDI mode, or a less direct mode, such as exporting. These two foundational theories of international expansion help to explain the way in which firms internationalise, choose market and entry mode.

Previous research on new market entry has focused on the mode of entry into the new market, and the opportunities of internationalization (Han, 2016; Hennart, 2009; Kabirai& Sinha, 2014). According to the authors, some of the advantages of new market entry are increased profit resulting from low competition and therefore control of significant market share (Dikova& Van, 2007). Additionally, the business spreads risks to other areas. Instead of operating in one area, the business benefits from diverse culture and tastes (Manea& Pearce, 2006).

Impact of MNE Entry on Host Countries

There is also significant research on the factors that affect MNE performances once they enter the new market (Standing, 2011; Chang, 2006). According to Blomkvist, Kappen and Zander, (2010), political factors are instrumental in ensuring the success of market entry. In areas where political instability is witnessed, the chances of business thriving are very minimal (Chen & Johnson, 2015). Chang, (2006), also affirms that technological changes contribute to business performance in new markets. Information technology infrastructure and technical capabilities determine the prosperity of a new entrant in the market (Duanmu, 2006).Social factors such as religion and wealth also have a crucial role in securing demand for goods and services (Duanmu, 2006).

However, when a multinational enterprise enters a new market, it also has implications for the host country businesses and industries (Durnev, 2010), an area which is less well researched. According to Ernes, (2003), a dominant company affects the host nation’s business operating in the same field. The weaker businesses find it hard to survive due to competitive advantages, including economies of scale, the MNE often brings to the market (Dikovas& Van, 2007). Although it is beneficial to the country regarding tax collected, there are also challenges faced by local businesses, such as increases in marketing costs (Dimitropoulou, Pearce &Papanastassiou, 2009). According to Brouthers, (2013), entry of an MNE in developed markets is essential for self-change and improvement, both in the home and host countries. There are few insights about the US based MNEs however, the researchers have found that an MNE entry into a host country could have a multi-layered impact on the host country’s business, one example could be by lowering the price of goods and services MNE could create a tough competition for the local businesses (Buckley & Casson, 2010). According to Chmielewski, (2010), the presence of an MNE lies in its capacity to disguise externalities by assembling resources and activities at a more proficient rate than local markets do. According to Parboteeah and Cullen, (2017), an MNE can disrupts conventional retail plans of action of the host country in various ways. MNE entry into the market of a host country can affect the profitability of the local retailers, for example, retailer margins could fall, along with the profitability and share prices of the local retailers (Demirbag, McGuinness & Altay, 2010). The two majorimpacts on competitive dynamics in the host country by an MNE is that, an MNE could affect the host countries retailers’ sales growth to moderate or decay, as an MNE start taking up the volume share. The second reason MNE’s attention on low costs forces local retailers to decrease their costs, which affects negatively on the host country’s business line (Fleury & Fleury, 2014).

However, these studies are focused on traditional bricks and mortar retailers, rather than digital platform retail. However, information technology has facilitated businesses to expand internationally, resulting in some suggesting these theories of internationalisation are in need of revision (Zeko, 2003). Online platforms have facilitated entry of new markets by offering opportunities to explore global markets (Herrmann, 2005; Abo, 2012).  Others have also explored how digital retail has changed retail competition(Morgan, 2009). However, what has not been well researched is the impact of digital international expansion on local bricks and mortar retail dynamics in the host country (Papanastassiou, 1997). Moreover, there is very little literature overall concerning the impacts of Multinational Enterprises entry into developed markets (Zeng &Glaister, 2015).

Digital International Expansion and Traditional Retail

A recent example of MNE entry which has been given significant public attention is the entry of Amazon into Australia, launching their Australian presence on November 23, 2017. Amazon’s entrance is expected to create various job opportunities to the residents of Australia and also strengthen the international ties and correlation between Australia and the US. Amazon already earns around $1 billion in its Australia sales which is a positive impact to the nation's gross domestic product. According to research carried out in Australia, the Amazon markets are expected to grow by 10% over the next five years, which will signify about 1/3 of the American development (Liberman, Garcilazo&Stal, 2014). The available commentary also indicates that the entry of Amazon into the Australian market had a widespread effects on the retailers (Farah & Ramadan, 2017). It is suggested that many competitors were not well prepared for the entry of Amazon (Eriksson & Kovalainene, 2015).

Farah and Ramadan, (2017), have suggested that consumers in Australia are more attracted to shoppingonline than at traditional bricks and Mortar shops. Moreover, according to a survey conducted by Ashraf, Thongpapanl, Menguc and Northey, (2017), 75% of the youth aged beyond 18 years were interested in subscribing to the Amazon’s site. Further, 56% affirmed that they intended to purchase from the company due to personalized services and availability of a wide range of goods. Special services such as discounts and delivery attracted people to shift from their routine physical store shopping to online shopping. With Amazon reportedly planning to lower prices by up to 30% in the Australian market, it has been suggested it will be challenging for existing bricks and mortar retailers to compete in the market (Eriksson & Kovalainen, 2015). However, although Amazon has challenged traditional retailers, it is suggested that, retailers who adjust to the entry will benefit (Farah & Ramadan, 2017).

Australia will provide huge market and business opportunities for online players such as Amazon. This is due to the reason that, according to latest report, the expenditure in the online shopping in Australia is rapidly increasing. Thus, it will be a huge opportunity for them to tap the growing trend of expenditure in online shopping (Schu, Morchett & Swoboda, 2016). On the other hand, this scenario is also a warning call for the existing players in the Australian market due to the fact that, majority of the existing players are operating through brick and mortar stores along with having additional online facility. Thus, it is of utmost importance for them to respond effectively to the threat of entry of Amazon (Zeng & Glaister, 2016). 

Figure: 1

Trend of online shopping in Australia

Source: (Australiandiscounts.com, 2017)

In terms of the consumer goods category, the key rivals for Amazon in Australia are the Coles, Sainsburry and Woolworths. All these players are having their own online stores along with their offline stores. However, they are mainly known for their offline stores and they mainly cater to limited types of business lines. On the other hand, Amazon is having huge diversity and assortment of their products. Thus, they will have rivals in different sectors such as JB HI-Fi Ltd and Harvey Norman in the electronic retailing category. Thus, the key aspects that should be considered are the competitive response by the Australian retailers to the entry of Amazon. One of the key responses is having the online marketplace along with the traditional brick and mortar stores (Verhoef, Kannan & Inman, 2015). Companies such as Coles and Woolworths have initiated their online marketplace to tap the growing demand of online shopping. According to reports, one of the new trends being emerged recently is the customers researching products online and opting to shop offline (Skrovan, 2017). This is mainly due to the reason that, customers always prefers to shop offline due to having the touch and feel facility. Thus, the existing retailers are tapping this concept of offering both online and offline facility for the customers (Hsieh & Tsao, 2014). This is helping them to enhance their competiveness by offering the touch and feel facility to the customers, which Amazon cannot offer currently.

Amazon's Entry into the Australian Market

As a current case there is no existing scholarly work exploring the entry of Amazon into Australia and its effects on local businesses, however the case does provide interest in terms of observing the impacts of the initial launch of Amazon in the Australian market. Although there is no scholarly research currently available, there are commentaries in the media and political sources about the impacts (Ogendo, 2017).Therefore, this study will explore the impacts on local competitors of a digital MNE entering a developed retail market, by analysing the case of Amazon's entry into Australia (Hodnett & Hsieh, 2012; Kabiraj & Sinha, 2014).  

Underpinned by a post-positivist paradigm, this research will utilise a secondary qualitative methodology, using a case-study approach to explore perceptions of Amazon's entry into Australia. Case-study research allows the use of different sources of data to build a deep understanding of the research context (Sartor &Bearnish, 2014). To achieve an in-depth understanding of the research question, the paradigm will be post-positivist one because this paradigm highlights the importance of thecontext of the phenomena (Eriksson & Kovalainen, 2015). Along with qualitative case study approach, which is useful for achieving a contextual and detailed understanding of the area by using various sources of information (Gray, 2009). Case Research allows access to a wide range of data from various case studies that will be used for more understanding. Also, the incorporation and contrasting of diverse opinions involved in case study approach can support and form a rich and thorough understanding of a perspective (Gray, 2009). As the topic andthe research design is exploratory in nature,case-study is an appropriate choice (Flyvbjerg, 2011; Standing, 2011).

The research will use secondary data gathered from media sources, government and industry publications related to entry of Amazon into the Australian market. The use of multiple sources allows for in-depth analysis and triangulation.Though it is often noted that detailed interviews are used in business research as key data collection, whereas other types of data sources are seen as complementary, for this research secondary data sources will support the research doing in a better way (Eriksson & Kovalainen, 2015).  Secondary sources have some of the advantages which makes them stand out for use in the research work. One, the information contained is provided by professionals whose works have been reviewed by others, hence acceptable for reference (Boslaugh, 2007). Additionally, it is possible to analyse various literatures based on time of publication. This allows better understanding of the phenomenon under study (Boslaugh, 2007).The first stage will be the review of extant literature from scholarly journal articles. The second stage of data collection will be from the quality national media sources. I will then use thematic analysis to analyse the data.

Secondary data sources – Amazon in Australia

Thematic analysis will be used in this research. According to Sartor& Bearish, (2014), thematic analysis helps to identify ideas (themes) from the data. Moreover, thematic analysis can support researcher’s interpretation of themes by data. My analytical approach will be grounded in nature, involving open coding in the first instance (Sartor & Bearish, 2014). After open coding, I will group themes with emerge, in an iterative process, consulting the literature.

Conclusion

The current study does not require ethical approval since secondary sources will be used in this. However, the work will be conducted ethically along with the guidelines of Auckland University of Technology (AUT) ethics procedure. 

There are no other additional resources required to complete this work, side from the usual study resources provided by Auckland University of Technology (AUT) to postgraduate students.

The research work will be conducted and completed on Auckland University of Technology (AUT) city campus.

Timetable for Completion

References

Abo T. (2012). Global Operations of Japanese MNEs’ Hybrid Factories: Management Geography Framework. In: Schlunze R.D., Agola N.O., Baber W.W. (eds) Spaces of International Economy and Management (pp. 176-199). Palgrave Macmillan, London.

Al-Habash, O., Mmieh, F., & Cleeve, E. (2015). Multinational Enterprises’ Entry Mode Strategies in Syria and Jordan: The Impact of Ownership Advantages. Thunderbird International Business Review, 59(6), 677-691. doi: https://dx.doi.org/10.1002/tie.21775

Ashraf, A., Thongpapanl, N., Menguc, B., &Northey, G. (2017). The Role of M-Commerce Readiness in Emerging and Developed Markets. Journal of International Marketing, 25(2), 25-51. doi:https://dx.doi.org/10.1509/jim.16.0033

Ayden, Y., Demirbag, M., &Tatoglu, E. (2017). Market Entry Strategies of Turkish MNEs. Turkish Multinationals,1(2), 127-168. doi:https://dx.doi.org/10.1007/978-3-319-57294-9_5

Beleska-Spasova, E., Loykulnanta, S., & Nguyen, Q. (2016). Firm-specific, national and regional competitive advantages: The case of emerging market MNEs—Thailand. Asian Business & Management, 15(4), 264-291. doi:https://dx.doi.org/10.1057/s41291-016-0009-8

Blomkvist, K., Kappen, P., & Zander, I. (2010). Quo vadis? The entry into new technologies in advanced foreign subsidiaries of the multinational enterprise. Journal of International Business Studies, 41(9), 1525-1549. doi:https://dx.doi.org/10.1057/jibs.2010.22

Boslaugh, S. (2007). Secondary data sources for public health (1st ed.). Cambridge: Cambridge University Press.

Brouthers, K. (2012). A retrospective on: Institutional, cultural and transaction cost influences on entry mode choice and performance. Journal of International Business Studies, 44(1), 14-22. doi:https://dx.doi.org/10.1057/jibs.2012.23

Buckley, P., &Casson, M. (2010). The Multinational Enterprise Revisited: The Essential Buckley and Casson (pp. 147-176). London: Palgrave Macmillan.

Chang, J, (2006). Ownership Structure, Diversification Strategy, and Performance: Implications for Asian Emerging Market Multinational Enterprises. In: Choi J., Click R. (eds.) Value Creation in Multinational Enterprise (International Finance Review) (pp.125 – 148). Emerald Group Publishing Limited.

Chen, V., & Johnson, L. (2015). Emerging market MNEs and social responsibility: An institutional pressure perspective. Transnational Corporations, 22(3), 1-4. doi:https://dx.doi.org/10.18356/6002938c-en

Chmielewski, D. (2010). A conceptual exploration of the strategic factors driving new brand entry decisions and their success. Australasian Marketing Journal (AMJ), 18(2), 66-73. doi:https://dx.doi.org/10.1016/j.ausmj.2010.02.001

Demirbag, M., McGuinness, M., & Altay, H. (2010). Perceptions of Institutional Environment and Entry Mode. Management International Review, 50(2), 207-240. doi:https://dx.doi.org/10.1007/s11575-010-0028-1

Dikova, D., & van Witteloostuijn, A. (2007). Foreign direct investment mode choice: entry and establishment modes in transition economies. Journal of International Business Studies, 38(6), 1013-1033. doi:https://dx.doi.org/10.1057/palgrave.jibs.8400297

Dimitropoulou D., Pearce R., &Papanastassiou M. (2009). Strategic Heterogeneity in MNEs and the Integrating European Economy. In: The Strategic Development of Multinationals. Palgrave Macmillan, London.

Duanmu, J. (2006). Country of Origin Effects on Knowledge Transfers from MNEs to their Chinese Suppliers: an Exploratory Investigation. Managerial Issues in International Business, 1(2), 162-179. doi:https://dx.doi.org/10.1057/9780230800700_10

Dunning, J. (2010). The Eclectic (OLI) Paradigm of International Production: Past, Present and Future. International Journal of the Economics of Business, 8(2), 173-190. doi:https://dx.doi.org/10.1080/13571510110051441

Durnev A. (2010). Comment: do we need a new theory to explain emerging market multinational enterprises? In: Sauvant K.P., McAllister G., Maschek W.A. (eds) Foreign direct investments from emerging markets (pp. 89-93).Palgrave Macmillan, New York

References

Eriksson, P., &Kovalainen, A. (2015). Qualitative methods in business research (2nd ed.). London: SAGE.

Ernes, J. (2003). Market entry strategies and competitive advantages in Poland. In: Stüting HJ. Dorow W., Claassen F., Blazejewski S. (eds) Change Management in Transition Economies. Palgrave Macmillan, London

Farah, M., & Ramadan, Z. (2017). Disruptions versus more disruptions: How the Amazon dash button is altering consumer buying patterns. Journal of Retailing and Consumer Services, 39, 54-61. doi:https://dx.doi.org/10.1016/j.jretconser.2017.07.005

Fleury, A., & Fleury, M. (2014). Local enablers of business models: The experience of Brazilian multinationals acquiring in North America. Journal of Business Research, 67(4), 516-526. doi:https://dx.doi.org/10.1016/j.jbusres.2013.11.008

Flyvbjerg, A. (2011). Case study. In N.K. Denzin & Y.S. Lincoln (eds.), The Sage handbook of qualitative research (4th ed., pp.289-299). London: Sage.

Gray, D. (2009). Doing research in the real world (2nd ed.). Los Angeles: SAGE.

Han, C. (2016). Can CSR by MNEs enhance home country image? An empirical investigation with Asian MNEs in Vietnam. International Journal of Business Governance and Ethics, 11(3), 183. doi:https://dx.doi.org/10.1504/ijbge.2016.081630

Hennart, J. (2009). Down with MNE-centric theories! Market entry and expansion as the bundling of MNE and local assets. Journal of International Business Studies, 40(9), 1432-1454. doi:https://dx.doi.org/10.1057/jibs.2009.42

Herrmann, A. (2005). Converging divergence: how competitive advantages condition institutional change under EMU*. JCMS: Journal of Common Market Studies, 43(2), 287-310. doi:https://dx.doi.org/10.1111/j.0021-9886.2005.00556.x

Hodnett, K., & Hsieh, H. (2012). Capital market theories: Market efficiency versus investor prospects. International Business & Economics Research Journal (IBER), 11(8), 849. doi:https://dx.doi.org/10.19030/iber.v11i8.7163

Ito J., Komoriya Y. (2015). The Impact of Transfer Pricing Regulations on the Location Decisions of MNEs. In: Ishikawa T. (eds) Firms’ Location Selections and Regional Policy in the Global Economy(pp 81-106).Springer, Tokyo

Johanson, J., &Vahlne, J. (1977). The Internationalization Process of the Firm—A Model of Knowledge Development and Increasing Foreign Market Commitments. Journal of International Business Studies, 8(1), 23-32. doi:https://dx.doi.org/10.1057/palgrave.jibs.8490676

Kabiraj, T., & Sinha, U. (2014). Foreign entry, acquisition target and host country welfare. The Manchester School, 83(6), 725-748. doi:https://dx.doi.org/10.1111/manc.12084

Liberman, L., Garcilazo, S., &Stal, E. (2014). Multinationals in Latin America. London: Palgrave Macmillan.

Manea, J., & Pearce, R. (2006). MNEs’ strategies in Central and Eastern Europe: key elements of subsidiary behaviour. Management International Review, 46(2), 235-255. doi:https://dx.doi.org/10.1007/s11575-006-0046-1

Morgan J. (2009). Theories of leveraged buyouts and theories of market instability. In: Private Equity Finance (pp. 153-178). Palgrave Macmillan, London

Ogendo, J.L. (2017). Achieve sustainable performance in dynamic business environment. In: Emerging Economy MNEs (pp.77-88). Palgrave Macmillan, Cham

Ozturk, A., Joiner, E., &Cavusgil, S. (2015). Delineating Foreign Market Potential: A Tool for International Market Selection. Thunderbird International Business Review, 57(2), 119-141. doi:https://dx.doi.org/10.1002/tie.21686

Papanastassiou, M. (1997). Firm-strategies and the research-intensity of US MNEs’ overseas operations: an analysis of host-country determinants. In: Global Competition and Technology (pp. 153-179). Palgrave Macmillan, London

Parboteeah, K., & Cullen, J. (2017). International Business: Perspectives from developed and emerging markets (2nd ed.). New York: Routledge.

Rathert, N. (2016). Strategies of legitimation: MNEs and the adoption of CSR in response to host-country institutions. Journal of International Business Studies, 47(7), 858-879. doi:https://dx.doi.org/10.1057/jibs.2016.19

Sartor, M., & Beamish, P. (2014). Offshoring innovation to emerging markets: Organizational control and informal institutional distance. Journal of International Business Studies, 45(9), 1072-1095.doi:https://dx.doi.org/10.1057/jibs.2014.36

Standing, G. (2011). Labour market policies, poverty and insecurity. International Journal of Social Welfare, 20(3), 260-269. doi:https://dx.doi.org/10.1111/j.1468-2397.2010.00778.x

Zekos, G. (2003). MNEs, globalisation and digital economy: legal and economic aspects. Managerial Law, 45(1/2), 1-296. doi:https://dx.doi.org/10.1108/03090550310770875

Zeng, J., &Glaister, K. (2015). Competitive Dynamics between Multinational Enterprises and Local Internet Platform Companies in the Virtual Market in China. British Journal of Management, 27(3), 479-496. doi:https://dx.doi.org/10.1111/1467-8551.12136 

Growing Online Shopping Trends In Australia And New Zealand. (2017). Australian Discounts. Retrieved 9 December 2017, from https://australiandiscounts.com/a-discussion-on-the-growing-online-shopping-trends-in-australia-and-new-zealand/

Skrovan, S. (2017). Why researching online, shopping offline is the new norm. Retail Dive. Retrieved 9 December 2017, from https://www.retaildive.com/news/why-researching-online-shopping-offline-is-the-new-norm/442754/ 

Schu, M., Morschett, D., & Swoboda, B. (2016). Internationalization Speed of Online Retailers: A Resource-Based Perspective on the Influence Factors. Management International Review, 56(5), 733-757.

Zeng, J., & Glaister, K. W. (2016). Competitive dynamics between multinational enterprises and local internet platform companies in the virtual market in China. British Journal of Management, 27(3), 479-496.

Hsieh, M. T., & Tsao, W. C. (2014). Reducing perceived online shopping risk to enhance loyalty: a website quality perspective. Journal of Risk Research, 17(2), 241-261.

Verhoef, P. C., Kannan, P. K., & Inman, J. J. (2015). From multi-channel retailing to omni-channel retailing: introduction to the special issue on multi-channel retailing. Journal of retailing, 91(2), 174-181.