Amazon in Shanghai, Wal-Mart in drugstores
Amazon's move into the Shanghai FTZ and Yhd's winning of an online drug license play on their global clout, as they try to differentiate themselves from bigger domestic rivals
Two of the world's biggest retailers are in the e-commerce headlines, led by a move into Shanghai's new pilot free trade zone by global giant Amazon (Nasdaq: AMZN). At the same time, Wal-Mart-controlled (NYSE: WMT) Yhd has become China's first e-commerce firm licensed to operate online drugstores, giving it a potential edge over other rivals also eying the space. Both of these stories highlight how the big international names are trying to use their clout and global connections to carve out a space in China's fast growing but highly competitive e-commerce space, which is now dominated by the domestic pair of Alibaba and JD.com (Nasdaq: JD).
Let's begin with the more intriguing of the two news bits, Amazon's announcement that its global division is setting up shop in the Shanghai free trade zone (FTZ) that was launched with much fanfare nearly a year ago. Amazon already has a China division that has expanded rapidly over the last two years, but is still a relatively small player with less than two per cent of the nation's e-commerce market.
This new initiative will see Amazon's global unit open a shop in the FTZ selling goods available from its main site at Amazon.com, to take advantage of the zone's preferential trade policies. Users will be able to pay for goods using local currency, and Amazon is promising competitive prices, including relatively fast shipping times for the imported goods. I suspect that Amazon will import and store many of the most popular goods in the zone, enabling it to make quick shipments after actual orders are placed.
The move makes Amazon one of the first major non-financial companies to set up shop in the FTZ, which has made nonstop headlines over the last year as more details emerge on what exactly it will offer. Preferential import duties appear to be one of the biggest benefits, which is why Amazon is making this move.
This kind of step plays to Amazon's strength as an international company, since it will now be able to offer Chinese consumers a wider range of imported products at attractive prices that they can't find on the big domestic sites. Amazon still has a long way to go before posing a serious challenge to Alibaba or even JD, but at least this kind of move will help it to differentiate itself as a different kind of e-commerce company for Chinese consumers.
Wal-Mart has made similar moves with Yhd, formerly known as Yihaodian, which also set up its own shop in the Shanghai FTZ late last year. Wal-Mart has also used its international connections to help Yhd build up its imported food business.
Yhd's latest move into the online drug business looks groundbreaking, even though it has less international in flavor. According to reports, Yhd has become the first e-commerce company officially licensed to operate in the lucrative drug space. The license is relatively limited, and will only allow the company to offer over-the-counter (OTC) drugs rather than more lucrative prescription drugs to line shoppers. Most or all of those sales will come from third-party merchants that already operate stores on Yhd's open platform.
This move looks like a mostly symbolic win for Yhd, since the other big e-commerce players are expected to get similar licenses as China allows more drug sales online. What's probably most significant is the fact that a very small player like Yhd beat out all the big companies to receive the first license, which probably owed at least partly to its Wal-Mart connections. Look for both Amazon and Wal-Mart to continue playing on their global ties to gain advantages over their domestic peers, though it could still be years before either poses a major challenge to the two current leaders.
Bottom line: Amazon's move into the Shanghai FTZ and Yhd's winning of an online drug license play on their global clout, as they try to differentiate themselves from bigger domestic rivals.
To read more commentaries from Doug Young, visit youngchinabiz.com