Table of Contents
Introduction
Since 1994, Amazon has gone from a startup business in a garage to a multi-service conglomerate. In 1998, the company quickly expanded their business internationally acquiring Bookseller, Ltd. in the United Kingdom and Telebook, Inc. in Germany. The two sites later flourished into what is now Amazon.co.uk and Amazon.de. In early 2000, Amazon hired Piacentini (Apple’s former general manager for Europe). Since hiring Piacentini, Amazon launched nine other country-specific websites in Italy, France, Spain, Japan, China, Mexico, Brazil, Canada, and Australia. In 2013, three of Amazon’s international sites accounted for 85% of total international revenues of $30 billion (“Amazon in Emerging Markets,” 2019). While Amazon quickly thrived in some countries, others proved to be more of a marathon. China and India came with individual setbacks that forced Amazon to recalculate their strategy in order to succeed in their markets.
Did Amazon Succeed in China?
In 2004, Amazon enlisted the Chinese market by gaining Joyo.com for $75 million. Joyo.com was a major online seller of books, music and videos in China. Amazon’s first year in China was run by Joyo.com’s domain name. Amazon products were primarily books, DVDs, and CDs sold to China’s major cities Beijing, Shanghai, and Guangzhou. In 2007, Amazon improved its products contribution to electronics, baby products, beauty care products and watches. Amazon converted their domain name to amazon.cn in 2007 and gave the new name “Amazon China” in 2011. Additionally, in 2013 Amazon introduced its Kindle e-reader to the Chinese market. Amazon decided it was time to change the logistics process in China. Piacentini and his crew extended Amazons distribution system by adding fifteen fulfillment centers across China. Amazon started to handle deliveries in-house to the consumer, presented free shipping on all purchases, and product recommendations. Amazon found that these attributes were effective in other Amazon markets.
In 2019, Amazon called it quits and decided to close its domestic e-commerce business in China. Despite operating there for more than a decade, the company struggled to gain traction. The Chinese sales are small enough that the company does not break them out in its financial reports. Although Amazon has decided to cut their domestic e-commerce ties, they will still provide some products imported by their sites in the United States, Britain, Germany or Japan. The cross-border response sales have been tested and proved to be more lucrative. Amazon is in a better position to serve the demand for high-quality, authentic goods from around the world given their presence. The company struggled to compete with cutthroat local competitors such as Alibaba’s Taobao and JD.com. It also could not quite adapt to the unique Chinese market that is price-sensitive for goods and favors near instant delivery and a focus on authentic foreign products (Weise, 2019).
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Once Amazon announced it would stop operating its China marketplace, many Chinese consumers hardly seemed disappointed (Ye, 2019). The Chinese netizens were not astonished numerous consumers anticipated Amazon closure of its domestic e-commerce business. “No kidding. Amazon came into China with guns blazing, but it didn’t try hard enough,” a Chinese netizen wrote. “It failed to adapt to the local market and the preferences of Chinese consumers. Who is going to buy from them (Ye, 2019, para.6)?” Amazon failed to succeed in China due to the inability to adapt to their country according to Chinese consumers (Ye,2019).
Amazon’s emergence into India initially presented a few barriers to entry that forced them to modify their business model for the Indian market. With an e-commerce market of over $16 billion in 2013, India represents a significant market share, making Amazon’s play to expand worth wild. India’s unique challenges to Amazon’s entry included: foreign direct investment laws, poor transformation and infrastructure, and a cash-centric payment preference. With a number of challenges to navigate, Amazon still managed to establish its presence there primarily operating as a marketplace.
Amazon succeeded in India by establishing a footprint in the emerging online retail business. Amazon learned several lessons durings its campaign in the Indian market: Strict laws against foreign direct investment (FDI) forced Amazon to modify its business model since it could not sell its own products. That modification for Amazon came in the form of focusing on luring local businesses to sell products on its platform, as a marketplace much like eBay. India’s e-tail competitors, Fipkart and Snapdeal, managed to appeal to the unique needs of the consumer market. Flipkart and eBay built a network of thousands of sellers and opened a number of fulfilment centers to provide storage for sellers goods. After securing a share of the market of sellers within India, Amazon was able to use its logistics and shipping process to focus on order fulfillment.
As Amazon prepared to break into the market, they realized that they needed to make heavy investments early since they were behind the market in comparison to eBay and Flipkart. The focal point of their early foundation would be implementing a strong logistics strategy to combat infrastructure and transportation issues. They also implemented the “Fulfillment by Amazon” program that alleviated the burden of shipment responsibilities on the seller. The Indian landscape provided multiple infracture based challenges to fulfillment; however Amazon succeeded by incorporating the use of landmarks and other uniquely Indian location information into its distribution and fulfillment system. Most importantly, Amazon learned to adapt in order to penetrate the Indian market and secure its footprint within the constraints of topography, trade regulations, and competition–in order to bring swift fulfillment of online orders to customers.
After establishing a fulfilment strategy, Amazon had to shift its focus to maturing its competitive strategy since India already had successful ecommerce companies in its market. In order to competitively introduce itself to the e-tailing market in India, Amazon ran a number of promotion that provided consumer a variety of enticing deals including free shipping for orders over $4.99, cash-on-delivery payment options, same day delivery and mobile apps to reach the mass mobile consumer in the region. You could say that Amazon successfully and strategically operated in India, even while entering the market after other successful competitors.
Amazon is in a great position today. They are essentially the top eCommerce business. Amazon is almost rivaled by no one in America. Amazon definitely continues to dominate the market in the United States. It is essential for Amazon to expand their operations into global markets. In the United States they face little competition in eCommerce. However, retail company Alibaba is a powerhouse in China and can prove difficult for Amazon. Amazon must beat Alibaba specifically in international markets in order to establish a foothold in global markets. In recent years, the company has already been trying to increase their presence in overseas markets. Amazon has already essentially failed an attempt to try to expand into China.
Amazon basically failed because they did not adapt to China’s specific needs. The company attempted to simply replicate their business model in America and transport it to China. The company failed to realize how sensitive the Chinese market is to price, failed to adapt to different payment systems in China and falsely assumed that they could enter the market by simple acquisition of another company, which is a common practice by the company, but ultimately did not work in China. Amazon has already begun expanding into Turkey, Australia, Mexico, Brazil, as well as India. These expansions have also come in as recent as the last five years. As of right now, these five countries are very attractive targets for expansion. In 2018, Amazon raked in $65 Billion of international revenue. This sum is not as high when compared to the $124 Billion in North America.
The addition of those five countries could add upwards of $25 Billion by the year 2023, which could help close the gap in revenue between domestic and overseas markets. More specifically, India presents the greatest opportunity. A simple fact that India has the second largest population in the world of all countries only behind China in itself is a great opportunity. Financial analysts predict that India could potentially accounts for 13% of Amazon’s international sales, which would translate to 4% of the company’s total earnings. Analysts show that India shows the greatest potential for revenue for Amazon in international markets. However, expanding into India will prove to be a very uphill battle for Amazon. It is estimated that Amazon currently has around a 30% market share in India, compared to Walmart that has about a 44% market share. Also, in India only around 20% of the country has access to the internet, compared to the United States at 86%. Amazon has to make sure that they do not make the same crucial mistakes in India that they made in China.
Amazon has already begun expanding the grocery segment of their business, Amazon Fresh, into India. The service will be available to customers in the city of Bengaluru and the company has plans on rolling out to service to other cities within the country. Before making this announcement, Amazon opened its biggest campus in the world, which was located in Hyderabad, India. The location of this campus shows the commitment Amazon has made to expanding internationally through their investment in that part of the world. Amazon has invested $5 Billion into India already, and has over 62,000 employees there. It was also reported by CNBC that the company plans to invest upwards of $2 Billion more. All in all, if Amazon stays the course and proceeds with its expansion into India, the company will be looking at a big increase in revenue. The country’s large population is a very big opportunity for Amazon. The company also must be able to adapt in order to comply with regulations. Once those criteria are met, Amazon will be able to cash in.
