Author(s): Martin Garner
In late April, Amazon announced that it will shutter its e-commerce marketplace in China by 18 July 2019. It will wind down support for merchants selling domestically during the next 90 days and review the impact on its fulfilment centres in the country. Amazon entered China with big hopes in 2004 when it bought online Chinese retailer Joyo.com for $75 million. It then rebranded Joyo as Amazon China, hoping it could quickly gain favour with consumers in the world's largest country by population. But that wasn't to be.
Amazon isn't leaving the Chinese market altogether, but will instead focus its efforts on Amazon Web Services, Kindle e-books and cross-border operations in China. Amazon shoppers will no longer be able to buy goods from third-party sellers there, but they still will be able to order from the US, UK, Germany and Japan through the company's global store.
The move underscores how difficult home-grown e-commerce rivals have made it for Amazon to expand in China, where the US online retailer reportedly has less than 1% market share and Alibaba holds more than half of the e-commerce market. The other significant player in China is JD.com.
In addition to powerful local competitors, we believe another deciding factor for Amazon's exit was the general slowdown in the Chinese online shopping sector, making the chances for profits and growth even slimmer. Amazon's decision isn't unprecedented, and other big-name western retailers have quit their Chinese operations: Walmart, for instance, sold its online shopping platform to JD.com in 2016 in return for a stake in JD.com. Similarly, China appears to factor less in the global aspirations of fellow US technology behemoths Facebook, Google and Netflix. The competitive and regulatory environment is just too different.
But when one door closes, a window opens. Amazon's departure from China will probably mean that it will focus more on its business in India, where it's locked in a fierce battle with local online retailer Flipkart, which has invested billions of dollars in India since setting up shop in 2013. But somewhat ironically, even in India, Amazon has to go head to head with Chinese companies. Alibaba and others have started to invest in local Indian start-ups like Paytm and BigBasket to take advantage of the huge promise of the Indian market.
India's e-commerce industry is projected to cross the $200 billion mark by 2026, up from $38 billion in 2017. India is also likely to be the largest market for Amazon outside the US, thanks to its massive population of more than 1.3 billion. And although only about 600 million of India's citizens are online, the proportion is rising quickly as more and more low-cost mobile devices become available. Given the sheer potential for growth in India, we expect Amazon to use every trick up its sleeve to succeed in the country.