Amazon's China retreat: why and the silver lining behind it
On April 18, Amazon.com Inc said that it will no longer operate a marketplace nor provide seller services on its Chinese website from July 18.
"We are working closely with our sellers to ensure a smooth transition and to continue to deliver the best customer experience possible," the company said in its statement.
It also mentioned that sellers interested in continuing to sell on the platform outside of China are able to do so through Amazon Global Selling. And shoppers in China will still be able to order from the United States, Britain, Germany and Japan via the firm's global store.
Amazon's footprint in China
Amazon, the well-known U.S. online retailer entered the world's most populous country in 2004, when it bought a Chinese online shopping website for $75 million, and rebranded the business in 2011 as Amazon China.
Its entry of the market has been accompanied by the growing dominance of China's e-commerce tycoon Alibaba, which was founded in April 4, 1999.
Amazon in the following years, launched its various products in the China market, such as Amazon Web Services, Kindle e-readers as well as its Prime membership program in 2016.
However, the market share of its core service, a retail platform achieved results far from satisfying.
A Chinese webpage of global goods on Amazon.cn website.
Last year, Alibaba Group Holding Ltd's Tmall marketplace and JD.com Inc., both China's home-grown e-commerce titans controlled 81.9 percent of the Chinese market, according to iResearch. Amazon, on the other hand, only grabbed less than 1 percent.
In 2015, Amazon opened an online store on the Alibaba site, paying for the latter to run its business in the country, which could be viewed as a sign of local rivals' dominance over Amazon.
Disadvantages Amazon faced with in China
As an outsider trying to claim victory in China, Amazon doesn’t seem to have major competitive advantages over its domestic rivals. It doesn't ship as fast as Tmall or JD, and the shopping experiences it offered, such as the payment system, don't seem capable of adding to the convenience of using its platform.
As Reuters puts it, "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." And even this analysis proves less persuasive as both Tmall and JD have launched their global sites in the past few years where shoppers can easily find their imported favorites.
And there are problems with talents recruitment culture as well as cultural difference in regards to shopping in and outside of China.
Amazon, like many U.S. multinational enterprises, loves to hire well-educated high degree holders from prestigious universities from major Chinese cities. But for these employees, not so many are self-driven up-starters. Alibaba and JD.com on the other hand, love to hire grassroots employees who have a strong work ethic which is not necessarily driven by aspiration but the need to make a living.
Paper sculpture of the novel A Song of Ice and Fire attracts a lot of pedestrians on Beijing's Wangfujing Street.
In terms of cultural differences when it comes to shopping online, Chinese shoppers love having interactions with stand-by sellers online as sellers on Alibaba always reply instantly to their customers. Amazon on the other hand, replies to its customers via email which usually takes several hours if not days, draining users' patience.
The localization process proves difficult for many U.S. service providers operating in China.
Silver linings for Amazon China
As the world's largest online retailer, Amazon certainly always looks for scaling and grabbing as much of the market share as possible. It might have to make a compromise for China though.
Even as Amazon's global store remains in operations in China, the problems it will be faced with remain the same as local rivals provide similar services.
Amazon might have a chance if it targets the well-educated Chinese younger generations as its main user group. A large portion of Chinese younger generations have gone abroad to study or travel, thus are accustomed to the online shopping experiences Amazon provides them with. When they have a novel produce in mind to purchase, Amazon is more likely to be the first destination coming to their minds rather than local rivals.
In other words, localization has already proven to be difficult in China; Amazon might want to go with its uniqueness this time to see if it has a better chance.
(with input from Reuters)