Amazon Languishing in China Online Retail Market after More than 10 Years
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It has been more than decade since Amazon entered China but, despite being in the country for such a long time, Amazon has struggled to make its mark in one of the largest online retail markets in the world. According to e-marketer, China is expected to overtake United States as the world’s largest retail market, and the gap is expected to grow even wider in the next few years.
But Amazon has not even made a dent in the Chinese market, which is completely dominated by the homegrown Amazon clone, Alibaba.
To be fair to the Chinese e-commerce giant, Alibaba services the same online retail market, but follows a completely different model for its e-tail operations. Alibaba is more of a technology platform that facilitates transactions between buyers and sellers, and assumes the role of a supervisor when it comes logistics.
Amazon is more of a hands-on retail player with strong buying and selling activities of its own. The result: Alibaba’s operating margin keeps crossing 30% every now and then, while Amazon hardly ever gets close to 5%.
As you can see from the chart above, despite having the best e-commerce technology in the world, Amazon only has a 0.8% share of the Chinese market to show for it. Tmall, Alibaba’s B2C portal, controls more than half the market. Along with its competitor, JD.com, they control nearly 80% of the market, leaving very little for any other player.
“The result: Alibaba’s operating margin keeps crossing 30% every now and then, while Amazon hardly ever gets close to 5%.”
One big advantage of e-tail is that once you get the lead, it’s very hard to topple you from that place. And it becomes even harder if you are the kind of company that keeps pushing the boundaries. Alibaba may have copied a lot of Amazon’s moves, but it changed the model to fit its needs, and its platform has evolved nicely over the years.
In the United States, despite big box retailers pouring billions of dollars every year into e-commerce initiatives, nobody is able to come close to Amazon. And one of the reasons for that is the huge lead that the e-commerce giant has over every other retailer. Since Amazon has the bulk of online shoppers, it’s natural that sellers gravitate to them, making Amazon even stronger in the process.
The more the GMV (Gross Merchandise Volume) moves, the higher Amazon’s margins go. Amazon then reinvests even more into its business, transferring some of the benefits to its customers, who are more than happy to keep ordering. It’s a self-feeding cycle that keeps Amazon at the top of the e-tail industry in United States.
Now, replace Amazon with Alibaba and the United States with China in this scenario, and add an extremely favorable government to the mix, and it’s easy to see why Alibaba sits at the top of the e-commerce pile in the People’s Republic – and why Amazon has to be satisfied with a sliver of market share.
In the world of online retail, those who play catch-up will always play catch-up, or so it would seem.
Questions & Answers
Q.What is the primary difference in business model between Amazon and Alibaba in the online retail market?
What is the primary difference in business model between Amazon and Alibaba in the online retail market?
Amazon operates as a hands-on retail player with its own buying and selling activities. In contrast, Alibaba functions primarily as a technology platform facilitating transactions between buyers and sellers, supervising logistics.
Q.How much of the Chinese online retail market does Amazon currently hold?
How much of the Chinese online retail market does Amazon currently hold?
Amazon holds a 0.8% share of the Chinese online retail market. This is despite its long presence in the country and having what is described as the best e-commerce technology.
Q.How do Alibaba's operating margins compare to Amazon's?
How do Alibaba's operating margins compare to Amazon's?
Alibaba's operating margin frequently crosses 30%. In comparison, Amazon's operating margin hardly ever gets close to 5%, despite both operating in the online retail sector.
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