• Alexander Liu-Middleton

Why China rejects Amazon!

Amazon has finally declared that it is giving up all hope of continuing e-commerce in China but apparently this had nothing to do with China’s famous protectionist policies so what actually happened?

If protectionism is not the culprit what kind of phenomenon can prevent the world’s largest e-commerce company getting a foothold in the world’s biggest e-commerce consuming country?

Basically it's the cut-throat competition for online consumers in China. Amazon China got sandwiched between Chinese digital giants such as Alibaba, JD.com and Tencent, specialised e-commerce companies such as Pinduoduo, Meilishuo and Mogujie, and cross-border ventures such as Xiaohongshu and Vipshop. Despite the dominance of the old guard new projects keep popping up regularly. The most recent addition is Tiktok, an industry-leading, algorithm-based short video sharing app that decided to expand into e-commerce, with native shops on its platform of 500 million users. China's e-commerce segment is enormous, far larger than that of the US, and yet still evolving, with new participants succeeding based on new consumer inclinations.

From the early years Amazon understood the importance of building up the e-commerce environment in China. In the US, Amazon developed its logistics organisation, automated warehouses, and third-party market, and vigorously played a part as the core player in the ecosystem. But Amazon paused in China. The early procurement of Joyo in 2004 and rumours of an acquisition of NetEase's Koala were as far as Amazon's exertions went. Even JD.com - often considered a copycat of Amazon in China - differentiated into logistics and financial services, slowly grabbing as many market shares from Alibaba's T-mall as it could, then leveraged its better service and delivery quality.

In the case of Amazon China, it just did not do enough to build a brand reputation and get close enough to the Chinese consumer. Shopping festivals, discount campaigns, nation-wide red envelope promotions and orchestrated efforts to integrate online and offline retail to entice the Chinese customer have always remained the area of local retailers. Chinese vendors have become the replacement for the new merchandising programme that is sustaining the ever more on-demand and location-based requirements of Chinese customers.

What is Amazon's future in China? A complete withdrawal by Amazon from China may seem inconceivable, but Amazon's own growth plan - building global infrastructure, leveraging data analytics, and entering different verticals, to infinity and beyond - cannot work everywhere. Investors on future IPOs of major start-ups that promise a global conquest - Pinterest, Zoom, and Uber (who have already failed in China) - must take note of this example.

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