The world’s biggest e-commerce brand, Amazon, has announced that it is planning to expand into Nigeria by 2023. The news, first carried by Business Insider, reveals leaked documents that detail plans to launch marketplaces in Belgium, Chile, Nigeria, South Africa, and Columbia next year. The Nigeria-South Africa expansion plan, bearing the code name, Project Fela, is billed to happen in April 2023, and promises more competition for local e-commerce players. Its entry into the African market is bound to stiffen competition, in what is already a saturated B2C e-commerce space.
B2C e-commerce in Africa already struggles with various market dynamics, particularly consumer skepticism, and the weighty influence of marginal costs on market players. One significant value that this possible inroads of Amazon into Nigeria could bring is the foundational architecture for seamless e-commerce, through its logistics backbone.
Amazon’s inbound logistics entails its ability to receive and store raw materials that it utilizes in the production of its goods and services. The company uses complex inbound logistics operations. Its fulfillment options were basically two-fold: fulfillment by Amazon and fulfillment by the merchant. Its Fulfilment by Amazon service is a key strategy for its expansion plans.
Without long-term contracts with vendors, the company utilizes its Fulfillment by Amazon (FBA) to cater to its logistics needs. Sellers can store their inventory in Amazon Fulfilment Centers, with the company taking full ownership of logistics, and product returns for the sellers. For its operations, the company is organized across three segments: North America, the International segment, and Amazon Web Services. Through these means, the company easily controls its operations across boundaries and ensures that it is constantly delivering to its customers. The latter segment, the Amazon Web Services is its highly innovative response to today’s changing business landscape, offering service offerings in cloud computing resources, storage, and learning for development.
Amazon is very proactive in outbound logistics, ensuring that its warehousing networks create a seamless linkage to the end-user. Over the past years, the company was heavily reliant on third-party delivery services such as UPS, FedEx, etc. However, the delivery has shifted internally in recent times, with the company managing its large fleet of transportation infrastructure, with over 400,000 drivers globally, 40,000 semi-trucks, 30,000 vans, and over 70 planes (Schoolov 2021). The company utilizes its Fulfillment centers as pick-up centers across the globe and utilizes robotic technology to manage the processes of receipts, stowing, picking, and shipment. The company also makes use of digital delivery for products that are purchased on Amazon Web Services or on the website and physical stores for online retail sales.
To drive sales, the company is very big on marketing allocating a significant portion of its annual budget to marketing activities. The company is the largest online retailer globally, and one of the top businesses globally ranking more than its traditional retail competitor, Walmart.
Amazon ensures its supply chain network resilience by enabling its processes to leverage automation and increase the speed of the delivery of goods. These buoy up the company against logistics and infrastructure risk. Through its Fulfillment Centers, the company makes certain that these risks of logistics and delivery are reduced to the barest minimum. The company has also mitigated costs in this area, by turning the delivery systems internally. With its wider reach across many geographies, it becomes easier for the company to manage its own internal network of logistics infrastructure and ensure that the delivery to the customer is from the closest node. The company hedges against market risk in this regard, as well, as it ensures that it is innovating above the market. Against the risks that came from the COVID-19 experience, the company was one of the few companies to benefit from the pandemic with massive online sales, that enabled it to record profits (Palmer 2020).
The pandemic, however, hit the company while still fresh resulting in many delivery delays and out-of-stock notices. This is because demand for its products online, surged massively, as shoppers turned online for products to protect themselves against the ravaging pandemic. The company was caught off guard in the face of this massive demand, and its supply chain faced its greatest test of resilience. There arose a backlog of inbound shipments, due to interruptions to the inventory. However, the company responded by moving its Fulfillment operations entirely in-house. These enabled the company to have greater control over the processes and make sure that it was automating effectively to increase its supply.
Amazon’s strategy of cost leadership
Amazon’s key strategy has been cost leadership, and to maintain its control on prices, it has always ensured that its supply chain was very resilient and effective. This implies that through global value chains, the company not only makes sure that its cost of production and operation is reduced effectively but as well, the cost of logistics is evenly distributed among its chain of outlets. A key result of its efficient processes comes from its timely managerial decisions. The company is renowned for its flywheel approach, developed by its CEO and Founder, Jeff Bezos, that was built on the virtuous cycle of customer experience, traffic, sellers, and selection, perpetuated by lower cost structures and lower prices. Through this dynamic approach to serving its customer clientele, Amazon leverages the spiraling and disruptive power of technology and the internet to scale and meet its rising demands.
Within the company, decision-making was of two types: type 1 decisions that were consequential, and irreversible, which went through heavyweight processes of deliberations and consultations before arriving at a quality decision, and type 2 decisions that were changeable and reversible (Charan and Yang 2019). In this way, the company was able to create a flexible governance structure for its processes. The company’s decision to take its logistics and transportation in-house was also an effective choice in the wake of the pandemic, as it enabled the company to better hedge against risks that came from the crises. The company could easily control its delivery processes and ensure that its production capacity was meeting up with its delivery.
In the wake of Amazon’s entry
As a reaction to the news of Amazon’s expansion into Nigeria, African e-commerce giant, Jumia, had its shared drop by nearly 10% last week Thursday. News of the company’s planned entry is bound to shake up the e-commerce sector in Nigeria, as many local players envisage what the market would look like after the entry.
Without a doubt, the news brings also some good, as it would imply more jobs for Africans. Currently, the company appears to be on a hiring spree, especially within Lagos, consolidating the news of its expansion. There is news that the company has been recruiting salespeople and engineers based in Lagos, especially with plans to launch its Amazon Web Services in the country. The company is also reported to have hired a major advertising agency to prepare for its entry with Prime Video through awareness campaigns.
It is clear that the global e-commerce giant is keen on launching its different products in Nigeria, and capturing a significant share of Africa’s vast market.