Amazon’s Chinese marketplace prepares to go the way of the Fire Phone
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Amazon’s Chinese marketplace prepares to go the way of the Fire Phone

Sometimes, you’ve just got to call it a failed experiment and move on. That’s the message that the world’s most pre-eminent ecommerce company, Amazon, is sending to China. The company, which faces local juggernauts like Alibaba and JD.com, has a long and successful history of failure – Jeff Bezos talks about it explicitly. Taking lots of little risks makes sense in business, he says, even though almost all of them will fail. That’s because when one of them pays off, it brings in enough to justify the whole strategy and more. The company’s Chinese marketplace, it turns out, is not it.

Amazon’s share price has appreciated by 28% year to date

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Source: Yahoo Finance

To be clear, Amazon is not shutting up shop in the world’s most powerful developing economy – far from it. Rather, the company is pivoting its focus to offer Chinese consumers goods from outside of the country. So, it’s marketplace that’s failed – not Amazon China. In addition to its online retail business, Amazon also runs Amazon Web Services, its Kindle Store, and a variety of cross-border operations, in China.

Why the pivot? Probably two reasons: first of all, China’s homegrown competition really is tough to beat. Amazon’s been active in the country since 2004, but major players like Alibaba have provided a domestic alternative that understands the consumer on the ground. They’ve got government support, and they’re now worth hundreds of billions of dollars. Could Amazon disrupt them? Maybe – but it would take everything the company’s got.

The second reason plays into that: if Amazon is going to shell out obscene amounts of money and effort, it wants to do so in India, where the growth is just around the corner, rather than China, where the growth is (at least partially) beginning to tail off. India has been pegged as the developing world’s Next Big Thing – it’s riding a trajectory that will see its population eclipse China’s in five years (according to the UN), and that population will be younger than its Chinese equivalent.

Backing that logic up is the fact that, over the last few years, Amazon has opened up shop in India and started making it more and more of a strategic target. China is still a big deal to the company, but it may now be looking to shift its competition with Alibaba and others to India.

Disclosure

Dominion holds Amazon (as well as Alibaba and JD.com) in its Global Trends Ecommerce Fund.


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