From July 18, the world’s biggest E-commerce firm Amazon will pull back its domestic marketplace and stop part of China operation related to third party merchants. This move marks the end of Amazon’s rivalry in the China market with local providers such as Alibaba and JD.com.

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Although Amazon stakeholders express their interests to ‘remain strong’ in China, we still see the American giant , one way or another, failed to be localize. 

Farewell to Domestic Marketplace in China

Amazon will make its China business to focus more on cross-border sales amid stiff competition from domestic operators in the world’s largest e-commerce market.The US e-commerce giant would stop providing services to third-party merchants on its domestic market place from July 18.

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“Over the past few years, we have been evolving our China online retail business to increasingly emphasis on cross-border sales, and in return we’ve seen very strong response from Chinese customers. 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,” Amazon said in a statement earlier.

Amazon users in China will not be allowed to purchase goods from third-party merchants in China, but they can still order goods from the US, UK, Germany and Japan through the e-commerce platform, according to Reuters.

Data from iiMedia Research showed that in the first half of 2018 Amazon accounted for only 1.2 per cent of China’s business-to-consumer e-commerce market while Alibaba’s Tmall and JD.com together took 83.8 per cent of the market share.

“Amazon’s commitment to China remains strong,” Amazon said in a statement. “We will continue to invest and grow in China across Amazon Global Store, Global Selling, AWS, Kindle devices and content.”

In November 2015, Amazon China launched its Amazon Global Store service to enable Chinese users to buy goods directly from markets outside China through its online marketplace.

“Our vision is very clear: Helping China customers gain access to high-quality and authentic international products at fair prices, and helping China-based sellers to grow their business globally,” Amazon China President Doug Gurr told the China Daily (a local English newspaper) four years ago.

In October 2016, Amazon launched its Prime membership program in China, including free, cross-border shipping from the Amazon Global Store as well as no-cost domestic shipping. A subscription to Amazon Prime China costs 388 yuan (AU$79.87) per year after the first year at the discounted rate. The service competes with local rivals like Alibaba Group, whose 88VIP loyalty program costs either 88 yuan(AU$18.12) or 888 yuan(AU$182.83) per year, depending on customers’ membership scores. This dual price provides an incentive for customers to write reviews, shop across a variety of product categories and interact with other Alibaba customers.—edited from South China Morning Post

Not Home-Grown, Nor Profitable

The move underscores how entrenched, home-grown e-commerce rivals have made it difficult for Amazon’s marketplace to gain a foothold. Consumer insights firm iResearch Global said Alibaba Group Holding Ltd’s Tmall marketplace and JD.com Inc. controlled over 4/5 of the Chinese market last year.

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“They’re pulling out because it’s not profitable and not growing,” said analyst Michael Pachter at Wedbush Securities. Ker Zheng, marketing specialist at Shenzhen-based e-commerce consultancy Azoya, said Amazon had no major competitive advantage in China over its domestic rivals—-Unless someone is searching for a very specific imported good that can’t be found elsewhere, “there’s no reason for a consumer to pick Amazon because they’re not going to be able to ship things as fast as Tmall or JD,” he said.

Amazon’s customers in China will still be able to purchase the firm’s Kindle e-readers and online content, said the sources, who spoke on condition of anonymity. Amazon Web Services, the company’s cloud computing unit that sells data storage and computing power to enterprises, will remain as well.

The U.S.-listed shares of Alibaba and JD.com rose 1% the day after Reuters first reported the shocking move, while Amazon’s shares closed flat.

The withdrawal of the world’s largest online retailer — founded by the world’s richest person — comes amid a broader e-commerce slowdown in China. Alibaba in January reported its lowest quarterly earnings growth since 2016, while JD.com is responding to the changing business environment with staff cuts.

It also follows the Chinese e-commerce retreat of other big-name Western retailers. Wal-Mart Stores Inc. sold its Chinese online shopping platform to JD.com in 2016 in return for a stake in JD.com to focus on its bricks-and-mortar stores. Similarly, the country appears to factor less in the global aspirations of fellow U.S. tech majors Netflix Inc., Facebook Inc. and Alphabet Inc.’s Google, Pachter said.

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Amazon bought Chinese online shopping website Joyo.com in 2004 for $75 million, rebranding the business in 2011 as Amazon China. But in a sign of Tmall’s dominance, Amazon nevertheless opened an online store on the Alibaba site in 2015. The firm is still expanding aggressively in other countries, notably India, where it is contending with local rival Flipkart.—edited from voanews.com

As a faithful observer of Chinese E-commerce businesses and Australian brands, Australia China Business Circle’s LinkedIn account posted a discussion related to Amazon’s pull back, to our great surprise, Australian/global professionals had a heated time debating the cause of the move. Without a judgemental viewpoint, let us have a closer look at those comments.

Opinions from the BC LinkedIn Post

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Kimberley, President of International Resources Development re-twitted her friends’ comment suggesting ‘foreign companies did it all right but Chinese are not fair’. Nevertheless she believes the developed Chinese commerce could eliminates the old generation of expat businesses but still very much hopeful for the younger generations, who are not afraid of intense competitions. The easy money in China’s good old times has gone. Mr. Rob Dean does not agree with the point of ‘Amazon doesn’t employ locally’, neither do we, what we meant is we Australian brands, when going overseas, should employ locally, communicate/PR locally and partner with local supply chain players.

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Corporate compliance expert Dan Harris suggests that policy/legal environment for particular industries can be the key factor to analyse whether a foreign company will be able to succeed in China or impossible. Conor Moore disagree with Stanley Tam, GM, Greater China at Softbank Robotic, on the issue of ByteDance’s global-scale excellence. He argues that Chinese internet companies are not quite successful in foreign markets unless they acquire local ventures. 

 

This is indeed one of the most controversial topics in cross-boarder E-commerce. It may not be as simple as a ‘possible or impossible’ issue but a result of a diversified, competitive and evolving China market, like Kimberley said in her comments. Home-grown or foreign, who can be the most localize, wins the ‘race’.

Edited by Joreal Qian