When US-based e-commerce powerhouse Amazon took its business overseas in 2018 to integrate with the global market, it faced some surprising resistance. Despite Q1 sales of $37 billion domestic, Amazon failed to replicate this impact internationally. In fact, the company faced losses overseas. But what led to this initial struggle? The answer lies in Amazon’s expansion into two specific countries: India and China
When Amazon expanded into India, it did so at a time when India-based e-commerce company Flipkart was experiencing great success. Backed by Microsoft, eBay, and other powerful companies from around the world, Flipkart raised over $4.65 billion from investors alone by mid-2017.
While Amazon achieved $7.5 billion in gross merchandise volume (GMV), Flipkart was right on Amazon’s heels. Additionally, Flipkart maintained higher revenue and found more success with smartphone sales.
Inc42 writer Meha Agarwal analyzed the competition between Amazon and Flipkart in 2018, noting that the two companies were truly neck-and-neck in terms of Indian market share. However, Agarwal noted Amazon India continued investing in the country despite losses and setbacks.
While Amazon India does hold a slight lead in India’s e-commerce market, Flipkart is expected to claim the top spot by 2023. This is due to Flipkart’s continued technology and service expansions, as well as Walmart’s acquisition of the e-commerce company. Since Flipkart is backed by so many powerful groups, it has the funding to push for more accessibility. This innovation will make up for Flipkart’s lack of non-commercial services, which Amazon is able to boast.
Chinese e-commerce company Alibaba was innovating and expanding before Amazon arrived. As of April 2019, Alibaba held 58% share of China’s e-commerce market. Because of its striking similarities to Amazon, from product offerings to services provided, alongside that high market share, Amazon’s expansion into China was a risky venture.
One difference to keep in mind is how these companies earn revenue. Amazon’s revenue comes from product margins while Alibaba utilizes a merchant fee. This fee allows sellers to move their products up on the site’s search list. In that sense, Amazon is a warehouse distribution company competing with a merchant-to-consumer intermediary.
While Alibaba’s structure requires tweaking as it expands to different global markets, its hold over China is strong. In fact, Amazon ended up shutting down its Chinese e-commerce business in July of 2019 due to intense competition from Alibaba. What’s more, Amazon is not the first American company to make fruitless e-commerce investments in China—eBay and Walmart have both attempted and failed to establish subsidiaries in China.
The Good News for Amazon
While Alibaba and FlipKart have experienced tremendous success in their countries of origin, global expansion has been touch-and-go. Amazon, on the other hand, benefits from its warehouse distribution strategy, as it allows for more control over customer experience. Of course, Amazon also offers intermediary services for retailers and buyers; while products come at a higher price in this system, it gives power to smaller businesses. By balancing both of these strategies, Amazon is able to offer more services to more customers, giving it a competitive edge in most global expansion.