Amazon just became the latest casualty of the strong foothold that large local players enjoy in China. Earlier it was Uber, for which competition from local cab hailing giant Didi Chuxing became among the key reasons for it to bow down to the latter. Amazon, on Thursday, in a statement to Financial Times said that it will shut its marketplace and seller services on Amazon.cn on July 18. Here too, competition from large incumbents like Alibaba and JD was among the critical factors that sealed Amazon’s fate.
“Amazon in China is very small and it is not growing there as well. So it doesn’t make sense for Amazon to operate in a market where almost 80 per cent share is held between Alibaba, JD and there are other players like Pinduoduo,” Satish Meena, senior forecast analyst at Forrester told Financial Express.
Amazon China’s market share is less than 1 per cent as per the Chinese market research company iResearch China. The company had forayed in China in 2004 by acquiring local e-shopping site Joyo that was rebranded as Amazon China in 2011.
Amazon had no major competitive advantage in China over its domestic rivals, Ker Zheng, marketing specialist at e-commerce consultancy Azoya told Reuters. In fact, “there’s no reason for a consumer to pick Amazon because they’re not going to be able to ship things as fast as Tmall or JD,” he said.
However, Amazon continues to grow aggressively in other countries, particularly India, where it has invested around $5 billion since its launch in June 2013.
The question, though, now would be whether Amazon’s marketplace exit from China would benefit Amazon India in any which way. At least from the perspective of driving focus to win and lead the Asia market, India might benefit from Amazon’s China exit.
“Essentially this will benefit Amazon in India. It will mean that Amazon will invest more in India for three reasons,” Suneeth Katarki, Partner, IndusLaw told Financial Express Online.
Among the three reasons, first, because they will be able to focus more funds to India since they do not have to invest in China anymore. Second, it becomes all the more important that they now succeed in India as this will be the only other really potentially large market for growth left for Amazon third, much more management focus also will come to India now from Amazon, said Katarki.
While how much capital, if at all, Amazon directs towards India to double down on the country’s booming e-commerce market will be seen ahead as any reallocation of capital into other territories by a company is guided by principles of financial management, India is set to get even more attention and importance for Amazon’s global growth which is slowing down.
“It is still early days for Amazon in India. The Indian consumer market is vast and complex. The launch of the sale of flight tickets, food delivery, etc. and its acquisition of (personal assistant platform) Tapzo are only early signs that Amazon aspires to not leave any chance to serve the last of billion Indian consumers. As Jeff Bezos had said, “we are here for 100 years”,” Kovid Chugh, Director, Startup and Innovation, Grant Thornton told Financial Express Online.
Meena, however, suggested that exit from China will not change anything for Amazon’s business in India. Moreover, Japan is another large market in Asia where Amazon is growing. In fact, Japan was Amazon’s fourth largest market in terms of annual net sales worth $13.83 billion in 2018 as research firm Statista. The US was the largest with net sales for 2018 worth $160.15 billion.
“I don’t think there is a correlation with India market now as Amazon was clear in terms of the amount they want to invest in India. Amazon is doing good in Japan even as India will remain in focus for the next 10 years and it will acquire a bigger market share,” said Meena.
Flipkart vs Amazon vs Reliance
While Amazon and Flipkart have been competing fiercely for supremacy in India’s e-commerce market, Mukesh Ambani’s Reliance foray into it will likely build a significant third alternative for customers to go to even as Paytm Mall seems to have missed the bus.
“It will be interesting to see how far will Amazon go with its online-to-offline strategy through Future Group to stay competitive with the local giant Reliance. The battle between Amazon, Walmart, and Reliance is still just warming up, this should prove good news for Indian consumers in the coming years,” said Chugh.
Amazon has reportedly been looking to acquire around 10 per cent stake in Future Retail.
Investment bank Barclays, in December last year, had claimed that both Amazon India and Flipkart have a similar run rate of $11.2 billion in gross merchandise value for FY19. The statement came as a clarification after its report in the preceding week that put Amazon’s GMV ahead of Flipkart.
“Flipkart is very strong in fashion category with Myntra and Jabong and that is stopping Amazon to take over Flipkart. While both the companies are almost of the same size but when you add Jabong and Myntra to Flipkart then there it is ahead of Amazon with a gap of 6-7 per cent market share,” added Meena.
India’s e-commerce market stood at $38.5 billion in 2017 and is expected to hit up to $150 billion by FY20, as per CARE Ratings.