Amazon will close its domestic e-commerce marketplace business in China, effective from July 18. The company will keep running other business sections in China, including Amazon Web Services, Kindle e-books, and cross-border operations.
The exit marked an end of the company’s 15 years of journey into the China market for their rigid localization in business strategy and management.
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“We are notifying sellers we will no longer operate a marketplace on Amazon.cn (the Chinese-language site) and we will no longer be providing seller services on Amazon.cn effective July 18,” the company said in a statement as Financial Times reported.
Amazon’s pulling out from China market didn’t shock me that much, although it being an e-commerce giant in the domestic U.S. market is an undeniable fact. When I was in the U.S., Amazon was my first choice for shopping online because it had numerous trustworthy products. But its limited choice of brands and slow delivery (even with Prime membership) always bothered me, especially in comparison to the fast and abundant e-commerce services in China.
Slow actions are costly for Amazon.
Amazon has been developing gently in China, after it acquired Joyo.com, a Chinese online shopping website in 2004.
“We are very pleased to be entering the Chinese market with Joyo.com,” said Jeff Bezos, founder and CEO of Amazon.com. “In a relatively short time, Joyo.com has established itself as the leading online destination for books, music and videos in China, and we’re happy to be part of one of the world’s most dynamic markets.”
Through this “win-win” acquisition, Amazon.com was supposed blend Joyo.com’s expertise in serving the Chinese market with Amazon.com’s experience as one of the world’s leading online retailers.
What were local e-commerce companies in China doing during those seven years?
Also in 2004, JD.com’s retail platform went online. In 2008, Alibaba started the Singles’ Day shopping festival. Ten years later, customers from 230 countries and regions spent a total of $30.8 billion on online shopping on that single day.
Huge discounts, fancy online advertisements and pervasive offline promotions from local rivals have been catching the eyes and wallets of Chinese consumers, while Amazon is pushing forwards in its old ways — gentle and slow.
Like its predecessors, such as Yahoo, MySpace and eBay, Amazon is paying the piper for not adjusting itself to the ever-changing Chinese market.
Data from iiMedia Research showed that Amazon China’s share in China’s B2C market dropped to less than 1.2 percent in first half of 2018, while Tmall by Alibaba and JD.com take up 83.8 percent. Ten years ago, that number once reached 15.4 percent in a year.
“Their ability to localize and compete is not so good,” said Wang Jian, professor from University of International Business and Economics.
Lack of trust in the Amazon China team is the root cause.
“We react slow because the decision-making power falls in the hand of the American headquarters,” said an insider who once worked at Amazon China.
JD.com CEO Richard Liu agreed that what he felt most during JD.com’s competition with Amazon was that Amazon didn’t have trust in its China team.
“The Chinese market changes quickly. Without mass delegation of authority, it’s going to be a problem,” said Liu on a show.
Liu compared Amazon operating in China as a battle. “You see, its president is always foreign, who has never lived in China. When soldiers are fighting on the front line and they’re given 10,000 bullets, they have to ask for one more bullet if ammo runs out,” said Liu, “How could they fight the battle that way?”
JD.com’s trump card is its fast delivery, compared with its domestic rival Alibaba. Although Prime membership give users as fast as two days, it’s still slow compared with JD.com’s one day or half a day delivery.
Liu also bought items on Amazon.cn only to find disappointment, as it took him two days to receive them. “How could they call that two-day delivery,” Liu said.
“It will be a disaster in China. And every customer will be unhappy,” Liu said, “Customers expect to get their products within six hours; two days would be too long.”
Will cross-border be Amazon’s last straw?
Slowly but gradually, Amazon China has been pivoting its focus from general e-commerce services to cross-border operations.
“Over the past few years, we have been evolving our China online retail business to increasingly emphasize 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,” the company said in the statement.
In February, Amazon China and NetEase Kaola, a Chinese cross-border e-commerce platform, are negotiating to merge their overseas purchase business.
Meanwhile, it’s shutting down operations centers. According to China Business Journal, the first 15 centers have been closing, with those in Shanghai, Ningbo and Hongkong left open.
“It makes perfect sense to no longer operate Amazon’s third-party online marketplace. Shutting down is way better than suffering from deficit,” said Wang.
Will this action turn the tables for Amazon? Probably, if the company can stick to its quality products, modify the promotion strategy and adjust its management structure.
Amazon is one of the first group of cross-border e-commerce platforms to join the battle. According to iiMedia,cn, the business in China gained initial development from 2010 to 2013, when buying agents targeting C2C and Little Red Book, or Xiaohongshu in Chinese, a user-generated content platform for discovering new lifestyle products started to emerge. More international e-commerce companies, such as Tmall, Amazon and NetEase entered the market within the next two years. And the competition has been upgrading since 2016.
Quality products were what helped Amazon gain a firm foothold. The company gained trust from 30.1 percent Chinese mobile consumers, only second to NetEase Kaola (36.7 percent) in 2016, as iiMedia showed.
Kaola maintained its lead with 27.1 percent share in the international retail market in 2018, with its high reputation and large user base, which were built on cost-effective, high-quality and trustworthy products.
“We have been committed to providing Chinese consumers with high-quality products from established international brands at competitive prices since the very first day,” said Zhang Lei, CEO of NetEase Kaola.
China’s cross-border e-commerce market is a large cake which is still growing. The transaction scale reached CNY 9.1 trillion ($1.4 trillion) in 2018, and is expected to break CNY 11 trillion ($1.6 trillion) in 2019.
Featured photo credit to Wall Street Journal