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Amazon Calls It Quits On Alibaba’s Home Turf

Beijing

Amazon Inc. (NASDAQ:AMZN) is as daring as they come, but knows a lost cause when it sees one. After nearly two decades squaring it off with the likes of Alibaba Group (NYSE:BABA), Tencent Holdings (OTC Pink:TCEHY) and JD.com (NASDAQ:JD) in the mercurial Chinese market, Amazon is finally calling it a day.

The e-commerce company has announced that it will shut down its Chinese online marketplace by July 18, in effect meaning that Amazon.cn will no longer be open to third-party sellers, leaving the space to China’s online heavyweights.

Amazon though will still allow its Chinese customers to shop at other international versions of the site including its American, German, British and Japanese marketplaces. The company also plans to keep a number of key operations in the country including its cloud business, AWS, sale of Kindle devices and ebook content.

Tough market

Conspiracy theorists might decipher President Trump’s hand in all this since he doesn’t seem to like Bezos or China much.

The reality, though, could be much more grim.

Amazon was a bit vague regarding the reason(s) why it was hanging its Chinese e-commerce boots, telling the Verge: 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 a 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 carefully worded statement appears to imply that the Chinese are not buying a ton of local stuff preferring instead to ‘‘buy high-quality authentic goods from overseas”.

In the final analysis though, Amazon was probably doomed to join the scores of Western retailers such as Walmart Inc. (NYSE:WMT), Best Buy(NYSE:BBY), Home Depot (NYSE:HD) Tesco (TSCO:LN) and others that have failed to crack the Middle Kingdom. Despite being one of the most admired online retailers, Amazon has only managed to take a paltry one percent market share of China’s domestic e-commerce market compared to 75 percent for Alibaba and JD, proving just how tough it has been for the American icon.

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There are several plausible reasons why Amazon has finally decided to call it quits. First off, Chinese consumers have become spoiled by local marketplaces such as Alibaba’s Tmall and Taobao which are able to offer a seamless user experience that Amazon cannot easily match. This includes mobile shopping apps and perks such as overnight free deliveries in the same province. Amazon, on the other hand, requires orders to hit minimums of 59 yuan to 200 yuan ($8.79 to $29.81) whereas Chinese players frequently offer free shipping with no minimums orders.

Finally, many luxury brands do not want to do business with Amazon due to the company’s stricter standards—which is not something you can say about its Chinese rivals.

Alibaba and other Chinese marketplaces have often been accused of allowing too many counterfeit products on their platforms. China’s third-party marketplace has become so cutthroat that businesses frequently engage in unethical practices such as manipulating product listings so as to rank higher on Amazon. This includes using dirty tactics such as placing fake reviews on competitors’ sites, paying bribes and posting fake sales—all of which violate Amazon rules.  

Constantly policing Amazon.cn might not be worth the trouble for Amazon considering the diminutive returns and the risk of tarnishing its reputation.

Cross border trade

But as Amazon has correctly observed, cross-border trade is one area where the company shines and can gain a nice competitive advantage. The company has already garnered 9 percent market share of China’s cross-border ecommerce which gives it a nice launching pad.

Amazon is widely known to be a logistical maestro, having honed its skills in its own highly demanding backyard. Coupled with its cleaner image, Amazon can become a logistics hub for Chinese manufacturers and retailers around the world to get goods faster and more efficiently to the Chinese consumer.

In the final analysis, competition provides the best market discipline and mastering China might eventually help Amazon crack other Asian markets.

By Alex Kimani for SafeHaven.com

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