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4 MIN READ

Amazon Miserably Failed in China. Do You Know Why?verified tick

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5 months ago
5 months ago
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According to the digital research firm emarketer.com, China is the world’s biggest e-commerce market with net sales of $426.26 billion with a growth rate of a whopping 35% since 2013 which is slightly lower than the next three biggest e-commerce markets combined. As of 2017, the number of internet users in China was more than one billion, which is three times as high as the second biggest market, India. The proportion of consumers who have made a cross-border transaction in China has risen to 67% in 2017 from 34% in 2015 as per Nielsen’s online shopper trend report.

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It is a no-brainer to conclude that China provides a tremendous growth opportunity for anyone looking to make money. Despite that, Amazon, the biggest e-commerce company of the world in terms of revenue, has failed to live up to the expectations in world’s second largest economy. Amazon has become synonymous with online shopping in countries like the United States and India where it enjoys more than 49 and 30 percent respectively. It has the highest customer satisfaction index among the internet retail companies in the world as per a study conducted by Forbes. Despite its financial might and brand equity, Amazon failed to decipher the Chinese conundrum and has a meagre 0.8% market share in the gigantic e-commerce market on the planet. Even the much celebrated and wildly popular two-day delivery service Amazon Prime Services has failed in China due to the availability of even faster delivery options by Daily fresh and Walmart for free. Also, Amazon’s video streaming services Prime Video isn't available in China due to censorship rules.

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There is a myriad of reasons as to why global online giants such as Facebook, Amazon, Apple, Netflix, and Google have found themselves floundering in a nation where the revenue of Top-100 Chinese Internet companies stood at 253 billion dollars in 2017 with a sensational growth rate of 50.6 percent. The reasons range from unconducive external market conditions to hubristic mistakes made by the brands themselves.


Presence of Gargantuan competitors

Chinese companies, once widely disparaged as copycats are riding on a wave of innovation and technology. The Top-100 Chinese online companies spent a whopping 106 billion yuan in 2017 for Research & Development. The Chinese e-commerce market is highly concentrated with the top 2 e-commerce companies commanding a gigantic market share of 75%, dwarfing all other competitors in the market. Jack Ma led Alibaba and JD.com have invested billions of yuan to improve the selection on their platform and offer customers heavy discounts and loyalty points on repeat purchases. Alibaba also created its own shopping festival called Singles Day in 2009 which has proved to be the single largest shopping festival in the world with the sales skyrocketing to 30.8 billion dollars in a single day in Gross Merchandise Value in 2018. To put it into perspective, this is triple the amount of what US customers spent on cyber Monday and black Friday combined in 2017.

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Digital payment

China has the biggest online payment ecosystems in the world with transactions reaching 12.8 trillion dollars between January to October 2017. The gigantic leapfrog of China from a completely cash-based society has been driven by Alibaba owned Alipay and Wechat which command 50 and 40 percent market share in the payments business respectively. These payments are an integral part of the Chinese e-commerce system. Both Alipay and Wechat have populated the Point of Sales (PoS) sales in China with more than 79% of the population of China expected to use smartphones at PoS by 2021.


Amazon’s One Size fit all strategy

Jack Ma in 2014 rightfully said “Amazon and eBay are e-commerce companies while Alibaba is not an e-commerce company. It helps others do e-commerce”.  Alibaba’s business is divided into three major segments, Tmall which is a B2C platform connecting 500 million customers to 50,000 brands, Taobao which is a C2C platform and Alibaba which is a B2B platform. It has enhanced its online ecosystem with Alipay, Aliexpress which is a global retail marketplace and Cainiao, the logistics provider network. This has led to the entire Chinese businesses being shifted to e-commerce while Amazon tried to supplement the businesses with e-commerce, which is why it is being seen as a threat to businesses. The strategy that has been highly efficacious in countries like USA and India, has completely fallen on the face in China.


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Jeff Bezos once said, “If we can keep our competitors focused on us while we stay focused on our customer, ultimately it will turn out all right.” Alibaba and JD.com enjoy stronghold in Chinese e-commerce markets riding on a wave of innovation and brand equity. Amazon needs to make concerted efforts to establish a value proposition stronger than those of aforementioned competitors and grow into a marketplace different from what it is internationally.

Chinese e-commerce markets are flooded by counterfeit goods which can prove to the Achilles heel for them. Amazon can try to exploit that by positioning itself as a one-stop shop for all the genuine Western products.


By Vivek Nandwani

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