Amazon Curtailing Business Operations in China
April 22, 2019
Amazon says it is curtailing business operations in China, the world's
biggest retail market, after struggling against better entrenched local
players for more than a decade.
The company announced recently that as of July 18, it will no longer
provide services through its Chinese website, Amazon.cn. The decision
means Amazon will stop selling goods from China-based vendors to
domestic consumers on the portal. Although it is moving out of the
e-retail business in China, Amazon will continue with its cross-border
business, bringing foreign brands and goods to China, the company said.
"Their demand for high-quality, authentic goods from around the world
continues to grow rapidly, and given our global presence, Amazon is
well-positioned to serve them," the company said.
The announcement has raised questions about the extremely thin presence
of foreign companies in internet-related businesses in China, while
Chinese companies like Alibaba create market space for themselves across
Amazon's market share in China has fallen from about 15 percent a decade
ago to about 6 percent. Alibaba and another local company, jd.com,
account for nearly 75 percent of the Chinese market. Online shopping
site eBay earlier moved out of China as it could not make a profit.
China is considered by many as a difficult market for foreign players
even without taking into account hindrances caused by government policy.
In the case of Amazon, however, analysts said the reasons for its poor
performance lie in its not being able to localize to meet the
requirements of the market.
Shaun Rein, managing director of Shanghai-based China Market Research
Group (CMR), said Amazon's Chinese platform could not survive because it
did not have a strong and stable management team. He does not think
Amazon was hampered by government policy.
"I don't think it is a problem of government protectionism," he said,
adding, "They (Amazon executives) didn't have the necessary relationship
in China and were unable to build the right ecosystem for people to sell
Getting a large number of local sellers is crucial for an e-commerce
platform to provide goods at competitive prices and in sufficient
variety to customers.
Jacob Cooke, chief executive officer of consulting firm Web Presence in
China, explained that Amazon could not compete with a gigantic local
player like Alibaba.
"Alibaba has in-country experience, low costs that are passed on to
consumers and unique knowledge of counterfeits / fake items.
Additionally, they have market data in China that is superior to
Amazon's," he said.
Analysts said Amazon has been concentrating on cross-border commerce
since realizing that it cannot effectively compete in the "local to
local" business of selling Chinese goods to Chinese customers, which
accounts for the bulk of e-commerce activity.
"Our belief is that the cross-border business suits Amazon much better,
as the "local to local" model is filled by large companies who operate
on very low (virtually non-existent) margins," said Cooke. "We feel that
cross-border is exactly where Amazon should focus their efforts in
China, based on their strengths."
internet-based businesses have very little presence in China, which has
the biggest number of web users in the world. This is partly because a
large number of U.S.-based sites including Google, YouTube and Twitter
are banned, while e-commerce companies have walked away. Amazon's
departure will likely only make it harder for other foreign retail
companies to succeed there.
"I think it would be very hard for large e-commerce players from foreign
countries to build in China. It is still possible for niche players like
there are opportunities in luxury space and cross-border trade," Rein
American and European brands will have to depend heavily on local
e-commerce companies like Alibaba and jd.com to see their products,
analysts said. Although Amazon will continue to sell foreign-made goods,
its reach is limited in China because local companies dominate the
cross-border trade as well.
"Unfortunately, Alibaba is almost a monopoly in some ways and they have
way too much power because they control the eyeballs," said Rein,
adding, "They (Alibaba executives) control traffic so they are able to
force Western brands to discount even if Western brands do not want
to,"Rein said. "Alibaba controls the relationship with the customer
rather than the brand controlling the relationship with the customer."