Editorial | It is still too early to write off Amazon in China’s e-market

Observers generally mark 2015 as being when Amazon’s Chinese push began with the launch of Amazon Global Store, an online marketplace to allow China’s mainland customers to buy goods directly from markets outside the country. It has since made a valiant push to include domestic goods as well. But in fact, it made its first foray in 2004 when it bought a nascent online store which already offered Chinese services.

Now, it is scaling back operations. It is not clear whether this is the beginning of the end or a strategic retrenchment. From mid-July, Amazon will stop providing services to third-party merchants on its domestic marketplace. In effect, this means mainland customers will no longer be able to buy goods from domestic merchants. Amazon has described the move as “operational adjustments” and stressed that its online services can still be accessed through overseas products. Its cloud computing service will also continue.

Amazon in China has long struggled with fierce domestic competition and lack of brand awareness. As a result, it has had to boost spending and resources to expand its client pool and compete with well-established rivals. In late 2016, it launched its Prime membership in China, including free, cross-border shipping from the Amazon Global Store as well as no-cost domestic shipping. Those operations have, no doubt, proved costly and unprofitable. According to iiMedia Research, Amazon had a minuscule 1.2 per cent of China’s business-to-consumer e-commerce market as of the first half of last year, while Alibaba’s Tmall and JD.com together dominated the market with 83.8 per cent of its share. Alibaba is the parent company of the South China Morning Post.

Given the country’s business environment, Amazon’s latest retrenchment is probably inevitable. Online domestic giants like Alibaba are so entrenched that it would be a Herculean effort for any foreign company to break into the mainland e-market.

Still, it is too early to write off Amazon in China. It remains a formidable player in cross-border sales and linking different markets around the world. As mainland customers become more affluent and interested in foreign products and brands, global online giants such as Amazon are well-positioned to offer higher-end services. Just as Chinese online giants have struggled to break out internationally, it should be no surprise that big foreign companies have trouble breaking into China.