Amazon's Strategic Alliances
One major way Amazon has built their business so
successfully over the years is through utilizing strategic alliances with firms
they feel share their business competencies.
In Chapter 13, we learned there are multiple different ways companies
can strategically align with one another, however the important part of each
alliance is to strategically grow (and profit) from associating your business
with the other. The basic three ways
companies can form a strategic alliance are through nonequity alliances, equity
alliances and joint ventures. Each
alliance has varying characteristics but have played a part in Amazon’s success
so let’s take a look at how each one has been incorporated into their overall
business growth.
Our text defines a nonequity strategic alliance as one where
firms agree to work with one another in order to develop, manufacture, or sell
products or services, however they don’t take equity positions in one another’s
business or form a separate organizational unit to manage their aligned
efforts. An example of a nonequity
strategic alliance leveraged by Amazon would be their primary shipping
relationship with UPS. Amazon has made the strategic decision to not ship
solely with one carrier, however the vast majority of their shipments are
shipped and delivered by UPS. While it’s
not clear just how many packages are shipped through the UPS network, it is
clear that these Amazon packages represent about 5-10% of UPS’ total revenue. Both UPS and Amazon benefit from this
alliance but it does not go to the point of taking equity positions within each
other’s business. Amazon benefits by
receiving steep shipping discounts from UPS and UPS benefits by generating
reliable revenue from the millions of Amazon orders shipped continuously.
The next category of strategic alliance, the equity
alliance, is defined as cooperating firms that supplement contracts with equity
holdings within the alliance partners. This
takes the alliance relationship one step further and allows aligned parties to
have an equitable stake in one another’s business. A lot of Amazon’s alliances begin as an
equity alliance before eventually becoming a full acquisition in the
future. It’s a way in which Amazon can
align itself and understand the business further before fully taking control of
all operations. For example, Amazon and
Ring, the home security camera company, formed an equity alliance in 2016 where
Amazon saw enough potential in their operation to fund their company
financially (which is beneficial to Ring) but then demanded a portion of their
revenue in return (which was beneficial to Amazon). This eventually led to a full acquisition in
2018. Amazon is so good at identifying
underfunded opportunities that’s very difficult to spot their equity alliances
while they’re happening – you blink and they’ve been bought.
The last category of strategic alliances is referred to as a
joint venture. This exists when
cooperating firms create a legally independent firm in which they invest and
from which they share any profits that are created. Essentially, a joint venture exists when
aligned companies come together to create (or invest in) a company that they
both expect profit from due to the aligned relationship. Amazon’s most recent joint venture involves
the healthcare industry. According to
Geek Wire, Amazon launched a healthcare joint venture with JPMorgan Chase and
Berkshire Hathaway in order to provide low cost and improved care to the 1.2
million employees shared between the three corporations. It’s been a pretty private joint venture
since forming in January 2018, however the three companies hope to leverage
their size and power to offer better healthcare to their employees while also
benefiting financially themselves.
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