Amazon, the leading e-commerce company in the US with over US$107 billion net sales in 2015, initially started out as an online bookstore, has become the go-to destination for online shopping.
History of Amazon China
However, like many other large Western companies, Amazon has yet to crack the Chinese market. Major competitors include the Alibaba Group, who have a grip on the market with various sites aimed at different audiences. Amazon China focuses on the business to consumer (B2C) market exclusively, rather than business to business (B2B) e-commerce.
The China subsidiary of Amazon was originally Joyo.com. Launched in 1998 the company followed similar steps to Amazon, by being an online bookstore. Years saw Joyo.com not turning a profit, but developing a strong presence and receiving investment. In 2004 Amazon bought the firm and created Amazon China, the firm’s 7th regional subsidiary.
Figures provided by Statista.com showed Amazon China only captured 0.1% of the B2C market in 2015. Tmall (Alibaba’s B2C platform) however obtained 58%. Such dominance makes Amazon’s challenge much greater. A company their size does have substantial funds, but we have seen previous foreign companies spend significant sums with no success. In the United States, Amazon captures 30% of the B2C market, which is still much lower than the share Tmall manages in its home market. This underlines how challenging the e-commerce environment in China is.
Progress is being made though. Amazon China launched Prime into China to promote imported products, through a shopping portal called Haiwaigou (meaning “purchasing from overseas”). To generate future growth and compete against local Chinese firms, the company needs to move away from the one-size-fits-all approach and apply a strategy uniquely suited to the Chinese market.
Future Potential of Amazon China
Amazon’s foothold in China may stretch further than being an online storefront. In 2014, Amazon bought the live streaming site Twitch for $970million. Twitch receives over 100 million visits each month, making it the largest platform for their industry. On the site, you find people streaming video games while interacting with their viewers. Twitch is a by-product of the surging popularity of e-sports, where gamers play competitively against each other. This market is booming, with the Chinese market being one of the largest contributors.
Amazon may take advantage of its position in the live streaming market and demand for live streaming events in China to increase its share of the market. If successful, Amazon may lead the way for foreign firms trying to break into China’s market, which currently strongly favors local champions.