As the industry leader with largest market capitalization amounting to $79.48billion, Amazon.com (AMZN) is exposed to more risk compared to the others. The risk that affected Amazon the most is Operational risk. Due to the business environment which comparably new to others, Amazon has to go through many tough issues. Amazon has to manage the risk arising during their business operations such as technology risk, inventory risk, intellectual property and so on. Amazon found it hard to manage risk because e-commerce or online trading is fresh, meaning the concept was new and evolving. some steps take by Amazon to manage risks include: To reduce inventory risk, Amazon transferred this risk to a third party seller who holds the ownership of the inventory. This helps minimize the cost for holding the inventories. Read on to understand various steps taken to reduced risks and costs.
[...] By comparing the stability of Amazon.com and eBay, Amazon.com is competitively advantage because it has very few major changes whereas eBay suffered from major changes. Although Amazon.com faces restrictions, it is able to remain same and enforced consistently. On the other hand, sellers from eBay have been affected by the changes in eBay's feedback, fees, search results, detailed seller rating and so on. ii. Payment Methods It is compulsory for Amazon.com's sellers to use Amazon Payments to accept payments. On a standard basis, Amazon.com will collect the payments on behalf of sellers and then, deposit the money received into the sellers' accounts. [...]
[...] Recommendation has been made based on the consideration of the company current situation and feasibility Identification of Key Risks 2.1 Market Risks Foreign Exchange Risk Amazon.com have consists several International segments. Net sales and related expenses generated from the several International segments have been dominated in the functional currencies of the corresponding segment. The functional currency of the company subsidiaries to operate the business is same as the corresponding local currency. Because of the results of the company business and the intercompany balances, Amazon.com is exposed to the fluctuations of the foreign exchange rate. [...]
[...] Although the prediction is says not that precise but it still helps the company to estimate future interest payout and receive Foreign Exchange Risk To manage foreign exchange risk, Amazon.com uses currency swap, netting (intercompany) and foreign exchange hedge contracts as hedging tools. They are used to reduce the volatility of cash flow due to forecasted revenue, as well as transactions that are denominated in foreign currencies. Besides, Amazon.com involves in cross currency investments and invests in foreign government and agency securities. [...]
[...] All of these methods will subject different level of risk to the company. When customer made payment by debit or credit card, the company needs to pay interchange and other fee. This would increase the operating cost and lower down the profit margin of the company. The payment processing for the company was provided by third parties, so the company will face problem if these companies become unable to provide those service to them. The rules governing electronic funds transfer, certification requirement and payment card association operating rules which may change at any time can make the company fail to comply with it. [...]
[...] Hence, it is important for Amazon to manage its expansionary risk so that it will not harm the company's reputation, growth and operating results Business Strategy Risk A business strategy is essential in achieving a company's goals and objectives. Improper planning would push the company in sufferings, and more critically, cause the company into bankruptcy. Amazon.com is worried about the inadequately prediction on customer demand or optimizes and operates their fulfillment centers. Excess or insufficient inventory problems will arise if Amazon made wrong prediction. [...]
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