PEST Analysis of Russia and Mexico Term Paper

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Amazon Web Services’ Expansion to Russia and Mexico

Executive Summary

While globalization has posed numerous potential opportunities and threats in the international business arena, many of these opportunities and threats are specific to individual countries (Zhuplev, 2016). Therefore, a country risk analysis becomes a crucial element to consider for companies doing business on the international scale. In this view, country risk analysis has been the subject of extensive research in recent times with a focus on a range of opportunity and threat factors such as the economic, political, social and technological environments. The type of institutions involved in these analyses is equally broad ranging from debt-rating agencies, research organizations, political agencies, business entities and international entities like the World Economic Forum. Indeed, comparing countries such as Russia and Mexico as will be done in this study will influence the decision that Amazon Web Services will make regarding the market to invest and expand its services.

Introduction

(a) Statement of Purpose

The purpose of this paper is to diagnose the economies of Russia and Mexico and recommend the most suitable market for Amazon Web Services. For this to be achieved, a comparative PEST analysis of the two countries will be conducted with the aim of identifying the opportunities and threats associated with the markets. This will be followed by a recommendation on the most suitable market having many opportunities and few threats.

(b) A Description of the Company and Industry

Amazon is an American-based e-retailer established in 1994. Its Amazon Web Services is commonly known as cloud computing and platform that offers businesses with content delivery, database storage, and other applications that increase the scalability and growth of companies. Nowadays, the company is not only a leading online retailing firm globally but also an icon regarding online business. The company intends to expand its Web Service business into either Mexico or Russia. However, the selection of the appropriate destination can only be made when macroeconomic, social and political situations in the chosen countries are analyzed and compared.

Analyzing the Environments

RUSSIA: Opportunity, Threat Factors, and Future Trends

PEST analysis is a useful model that can be used when identifying the opportunities and threats that a particular market presents to a company. Some of the important factors related to the political, economic, social and technological environment. They will influence the success of Amazon Web Services in the new market.

Political Factors

The Russian economy is based on an open foreign relationship (Berger et al., 2017). Presently, the country has established official relationships with over 200 countries thereby presenting a good opportunity for the economy and various industry players. Russia is playing a very important part in preserving world peace and safety. Therefore, they have adopted the most recent technologies besides having the biggest store of nuclear weapons and the military that comprises the air force, the ground force, and the navy. The serves to strengthen the position of the country in world’s geopolitical space.

After being defeated in Afghanistan, Russia suffered bad economic and political turmoil, which shuttered the economy (Zhuplev, 2016). Since then, the country has been working hard to regain its financial stability, and the political leaders had to make some of the toughest decisions to recover their political stability. Currently, the national government is stable, and the political system is as per the country’s situation and convention. Although it is a federation, the role of the national government in business cannot be downplayed. Moreover, its judicial system is strong although the citizens lack freedom.

The peaceful and strong relationship that a country has with other nations is an important factor because it influences the growth of its economy and attracts more investors both from within and outside its borders (Berger et al., 2017). The political government plays a key role in running the business of the entire country to maintain the social and economic stability. To attract investors, Russia demonstrates an impression of security and safety including growth opportunities within the country. Therefore, Amazon Web Services will benefit from this initiative if it ventures into the Russian market.

Economic Factors

In Russia, energy prices have become stagnant, and capital and labor are fully utilized making its growth to drop below the pre-crisis rates. Therefore, it faces the challenge of ensuring its economy is stronger and less dependent on the oil industry making it a serious weakness in the Russian economy. While seeking to overcome this challenge, the country needs greater energy efficiency and higher productivity growth all of which must be driven by stronger investment, competition and better skills-job match.

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Nonetheless, Russia is ranked as the eighth largest economy in the world as per the nominal GDP. Many businesses rely on the country’s two major natural resources such as gas and oil. With advantage associated with natural resources, the country is a perfect investment destination between Asia and Europe. However, its economy cannot be compared to that of Mexico and other European countries because of the overreliance on the oil prices in the market.

Moreover, Russia has an extensive energy and mineral resources. In fact, its natural resource base is the largest reserves worldwide, which make the country the biggest producer of oil and natural gas worldwide. The country is popular for its unrivaled nuclear weapons and has the largest stock of weapons of mass destruction. This has made the country to be highly ranked in the world. Looking at its economic growth rate, Russia is a promising destination for companies that want to expand business and create wealth such as Amazon Web Services. Its resilience can be seen from the way its economy grew despite the natural disasters that it faced in 2010 (Yakovlev, 2014). The country also survived the economic crisis, which affected the trade and economy of all countries worldwide in 2008/9. The graph below shows Russia’s growth rate over the years.

From this graph, it can be seen that even 2010 was not a successful year for business industries in Russia simply because of the climate and weather issues. However, in the 3rd quarter of the year, the GDP extended to hit 2.7. This differentiated Russia and other economies that play a main role in the global economy and confirms the confidence that investors including AWS will have while entering the Russian market.

Russia’s geographic location also presents a good opportunity to many companies from the west. With its location between Asia and Europe, its role in connecting two continents shows that the company has direct access to a foreign market, unlike Mexico. This allows companies in Russia to trade easily with countries in Europe and Asia, including North Korea, China, and Japan. This offers a great opportunity for Russia in gaining and exchanging experiences from the developed economies in the European region. Therefore, AWS should capitalize on this opportunity.

Social Factors

Following the collapse of the USSR and subsequent economic recession, the country shifted from the socialist to a democratic society (Cavusgil et al. 2012). With the growth of capitalism over socialism, the citizens tend to spend money on expensive outfits, cars, and other life necessities. The country supports entertainment and social activities, which improve the living standards of the population. Moreover, aspects such as ballet dance, music, literature, and artistry are loved in Russia. This shows the citizens resolve to try new things that come their way. The changing societal structure has led to the changes in people’s mindset and mentality. For instance, people have varying perceptions regarding the family planning. Since the 90s, Russia has been experiencing a remarkable decline in birth rate accompanied by an increase in death rate (Cavusgil et al. 2012). The country’s healthcare system is largely responsible for the death rate. Across Europe, the country among the nations that have been greatly affected by alcohol poisoning and HIV.

Moreover, there is widening aspect of income inequality between the rich and the poor. In fact, the gap between the rich and the poor in Russia is the biggest globally. Probably, the oligarchs snapped up the country’s best assets during the post-Soviet period that made them rich. Most Russians will only stare and envy the super-rich as they drink, smoke, and burn around in their luxurious cars. Economic experts warn that income inequality has increased eight times between the 80s and the 2000s (Yakovlev, 2014). Such a huge gap between the rich and poor has negated all the social and economic achievements that the country as achieves in recent times.

In 1993, Russia experienced a crisis in its constitution. However, the country was declared the federation based on a semi-Presidential system with support from a majority of the population. Tokso?z (2014) talks about the importance of having a constant policy and regime in attracting both internal and external investors. He notes that it is crucial to have policies that offer more advantages and benefits to companies or….....

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