Amazon in Asia-Pacific: A 2020 update
As the coronavirus pandemic forces dozens of retailers to close their doors or drastically reimagine their business models, Amazon is going from strength to strength.
The ecommerce and technology giant, which already wielded outsize clout before the crisis, has gained more than $600 billion on its market capitalisation in 2020, overtaking Microsoft as the second-largest company in the world. In its Q2 2020 earnings, it reported a year-on-year revenue increase of 40%, bringing in a total of $88.9 billion in sales.
Certainly, in the markets where Amazon is well-established, which include North America and much of western Europe, it seems nigh unbeatable. But it’s easy to forget that Amazon doesn’t have the same dominance everywhere across the globe – in fact, there are regions where it has faced significant challenges in establishing itself and turning a profit.
Amazon has expanded relatively slowly into the Asia-Pacific region for various reasons. There are some markets where it has a long-standing presence: Japan, where Amazon launched in 2000, was one of its earliest overseas markets after the UK, Germany and France. Amazon is also rapidly scaling up its business in India, a country where it has become well-established since launching there in 2013.
However, elsewhere Amazon has faced bigger obstacles. While the ecommerce giant got a relatively early start in China, launching there in 2004, it failed to adapt to the native ecommerce culture and finally bowed out in 2019 after struggling for many years against local rivals like Alibaba and JD.com. Amazon has also yet to turn a profit in Australia, where it launched in 2017, and has made no attempt to launch in most Southeast Asian countries, where local companies like Shopee and Gojek dominate.
Why has Amazon faced such difficulties across much of Asia-Pacific, and what are its prospects for success in each region? Let’s take a closer look at Amazon in Asia-Pacific in 2020.
Jump to:
Australia: Slow out of the gate
In November 2017, Amazon launched in Australia after being spotted hiring for more than 100 roles in Sydney at the beginning of the year and looking for warehouse space in Australia’s major cities. At the time, analysts predicted a shake-up in the region from Amazon’s arrival, but also noted that it would likely experience challenges in a country where online retail had yet to gain any kind of significant foothold.
While a country where shoppers were accustomed to waiting weeks for overseas deliveries might seem like a golden opportunity for Amazon, there was a reason that the vast majority of purchases in Australia were still being conducted in-person. A Bloomberg News report called Australia “the land of bricks and mortar”, noting that major population pockets in Australia can be thousands of kilometres apart, pushing up the cost of deliveries, with high wages and red tape also adding to the potential obstacles for Amazon.
Amazon’s initial Australian job listings emphasised its Amazon Fresh grocery offering, suggesting that it was planning to compete with local supermarket brands in the grocery space; some also expected Amazon to open up its Amazon Go bricks-and-mortar stores in Australia to appeal to offline shopping-loving Australians. When Amazon’s grocery offering launched in October 2018 it was indeed well-received, with some products selling out within an hour. However, other indicators of Amazon’s success in the region have been less positive.
Amazon Australia brought in just $17.3 million worth of revenue in 2017, which increased by 1500% to $292.3 million in 2018 – but its share of the retail market remained small, and the company’s Australian arm received substantial cash injections from its US business in order to stay afloat. In 2019 Amazon Australia’s revenue nearly doubled, but the company was still failing to turn a profit.
Battle of the marketplaces
Amazon is seeing stiff competition from Ebay in Australia, which is by far the preferred online marketplace with 22% market share compared to Amazon’s 3%, according to Morningstar estimates in October 2019. However, Similarweb noted in November 2019 that Ebay is losing increasing amounts of web traffic to Amazon and other competitors, going from 70% of traffic share in 2016 to less than half in 2019. Ebay has banned its Australian sellers from using a third-party provider such as Amazon to fulfil orders, a restriction that is not present on its marketplaces in the US and the UK.
Amazon is keen to advertise the fact that it has more than 10,000 small businesses selling on its platform, though it has not broken down the amount of revenue those businesses are producing. Australian SMEs are said to be wary of Amazon, though the ecommerce giant is making efforts to win them over: in 2019 it brought its Launchpad initiative, which supports small businesses with customised product pages, marketing support and unlimited Prime deliveries, to Australia.
Figures have indicated that Amazon benefited from a boom in online marketplace searches and visits during the coronavirus crisis; data from SEMrush, reported by Ragtrader, showed that Amazon.com.au gained 107 million visits from January to July 2020, an increase of 90.49%. In the same time period, Ebay pulled in 289 million visits, an increase of 57.2%. Like in many other regions, Amazon undertook a hiring spree in Australia during the coronavirus crisis, recruiting an additional 75,000 workers as demand for online shopping peaked.
Amazon is also shoring up its fulfilment capabilities in Australia, launching an Uber-like delivery network in January called Flex in which independent contractors deliver parcels to customers’ homes, and announcing in June that it would be building a massive robotics fulfilment centre in western Sydney to expand its operations in the country.
Opinions are split on whether Amazon will succeed at playing the long game in Australia or whether its slow start bodes poorly for the long term. However, with Australia’s business-to-consumer ecommerce market growing at a double-digit rate over the last few years to a value of $33.1 billion in 2019, cracking the Australian market is likely to be worth Amazon’s while.
China: Down but not out?
Amazon’s withdrawal from the Chinese market is often cited as a textbook example of its struggles to break into the Asia-Pacific region. Amazon launched in China in 2004 via its acquisition of Joyo, a domestic online shopping market, which was rebranded to Amazon China in 2011.
At a time when many domestic Chinese sellers suffered from a lack of consumer trust and struggled to police fake and shoddy goods on their platforms, Amazon enjoyed a reputation for legitimate goods, and so was trusted by Chinese shoppers. However, by most accounts, this honeymoon period did not last long; Amazon China suffered from a lack of autonomy, meaning that the business was not able to adapt to the unique conditions in the local market, which ultimately led to its downfall.
Among the many factors that drove consumers away from Amazon were its high prices for both products and shipping – China was (and is) an extremely price-sensitive market, and Amazon was regularly undercut on price by competitors; its lack of convenient payment options favoured by Chinese consumers, like Alipay; and its bland interface, a far cry from the jam-packed and colourful homepages favoured by China’s native ecommerce companies. While Amazon may have preferred to present a uniform brand worldwide, its lack of adaptation to the local environment cost it hugely, and the company was reportedly slow to implement changes, with improvements coming too little, too late.
By Q4 2018 Amazon’s share of the consumer Chinese ecommerce market was just 0.6%, far behind local competitors like Alibaba-owned Tmall, JD.com and Suning, who had all continued to grow steadily despite a slowing Chinese economy. It came as little surprise, therefore, when in April 2019 Amazon confirmed the closure of its domestic marketplace business in China, effective from mid-July.
Amazon insisted that its commitment to China “remained strong”, and that it would be focusing its efforts on cross-border sales of overseas goods to the Chinese market. To be sure, there is considerable demand in China for high-quality foreign goods – but this is an area where Amazon will still face stiff competition, with China’s ecommerce giants all vying for a larger share of the market.
Partnering with Pinduoduo
Since the closure of its Chinese marketplace, Amazon has made one slightly unexpected return to selling domestically in China, through a savvy partnership with Pinduoduo, a gamified ‘social commerce’ app that has made huge strides in the Chinese ecommerce market despite a late start in 2016. In May, Pinduoduo overtook JD.com as China’s second-most valuable online retailer – despite not yet being profitable.
Like Amazon, Pinduoduo is a player that is desperate to corner the overseas luxury goods market, as it made its name as a vendor of cheap and often low-quality goods and now wants to diversify. It therefore made a great deal of sense when Amazon opened a “pop-up shop” on Pinduoduo in time for Black Friday 2019, making around 1,000 overseas products available in its Pinduoduo store until the end of December.
It remains to be seen whether Amazon will repeat the experiment with Pinduoduo, but pop-up stores could prove to be a more sustainable and “China-friendly” way for Amazon to return to selling in China domestically, without the overhead costs of maintaining a constant presence locally. It will also allow Amazon to maintain some level of presence and brand recognition in case it decides to make a fully-fledged return to China.
However, the competition has not reduced since Amazon’s departure, with Alibaba, JD.com and Pinduoduo all responding well to the increased demand for online ordering and delivery during the coronavirus pandemic and seeing strong sales as a result. If Amazon wants to make any headway in China, it will need to come back with a properly-thought-out and adapted strategy. It’s possible that Amazon could open bricks-and-mortar outlets and compete in China’s burgeoning New Retail space – though it would still need to establish a viable delivery infrastructure to meet the rapid delivery expectations of Chinese consumers.
Whether Amazon is interested in doing this or would rather expend its efforts on other regions remains to be seen – but it’s hard to imagine Amazon being able to keep away from the world’s largest ecommerce market for long.
Seven Chinese ecommerce companies you should know about (other than Alibaba and JD.com)
India: A unique success story
In contrast to Amazon’s initial difficulties in Australia and its failure to adapt to the Chinese market, Amazon has enjoyed considerable success in India since its official launch there in 2013.
Prior to launching Amazon.in, Amazon had a presence in the Indian market via Junglee.com, a price comparison website that it acquired in 1996 and which launched in India in 2012 as a shopping website that enabled consumers to discover products from online and offline retailers.
Ultimately, Junglee folded in 2017 after years of unsuccessful pivots and attempts to find a niche that wouldn’t cannibalise Amazon, which had entered the market itself in 2013. It was folded into Amazon’s Local Finds programme, a platform for connecting online buyers with vendors selling handmade or used products locally. However, Amazon’s ownership of Junglee undoubtedly provided it with valuable customer data that helped it to launch Amazon.in a year later.
Allying with local sellers
Unlike in China, Amazon’s presence in India has been characterised by how successfully it managed to adapt to the local conditions and market. When Amazon launched in India, there were plenty of variables that could have posed extreme difficulties for Amazon, including low internet penetration, more than two-thirds of the populace being located in rural areas with poor infrastructure, a cash-dominated economy, and strict regulations that prevented foreign multi-brand retailers from selling directly to consumers online.
However, Amazon very smartly pursued a strategy of wooing and partnering with small business owners in India, who felt threatened by its arrival in the country. One of its key initiatives, which later won an innovation award, was Amazon Chai Cart, a cart that wheeled through Indian markets serving sellers cups of tea and talking up the benefits of ecommerce and selling on Amazon for their businesses. Amazon also enlisted “mom and pop” store owners as distribution partners, placing orders and taking deliveries on behalf of shoppers who don’t have internet access of their own. Much like other bricks-and-mortar shops who operate collection or drop-off points for ecommerce businesses, the shops also benefit from the increased foot traffic.
Other moves that have helped Amazon succeed in India include providing onboarding assistance for sellers, contracting with a number of major delivery services and using bicycle and motorbike couriers for last-mile delivery. Amazon has also made a variety of strategic investments into, and acquisitions of, companies to give it a stronger foothold in areas like offline retail, payments and SME lending.
Amazon CEO Jeff Bezos has made no secret of his enthusiasm for India, investing $5 billion in the region over the course of five years and pledging to invest an additional $1 billion in January of this year. Amazon recently expanded its Indian business into a number of new areas, including food delivery, which it trialled in May, and pharmaceuticals, with the launch of Amazon Pharmacy in Bangalore in August.
Amazon is not without competition in the region, of course. Its major competitor is Flipkart, an Indian ecommerce company currently owned by Walmart after the US retail chain acquired an 81% controlling stake in 2018. Another strong contender that emerged very recently is JioMart, an online grocery delivery service launched by Indian multinational conglomerate Reliance Industries.
While only founded in December 2019, JioMart emerged onto the scene just in time for the coronavirus-induced online grocery boom, and Reliance Industries is predicted to take a 50% share of the Indian online grocery market by 2024. In July, Amazon was reportedly in talks to acquire a stake in Reliance Retail, Reliance Industries’ retail arm – meaning that it could be thinking of allying with JioMart rather than trying to compete.
All in all, Amazon’s track record in India shows the value of adapting to unique local markets rather than trying to import an existing business model that was designed for a completely different region – and it could provide a valuable blueprint if Amazon decides to expand further into Southeast Asia.
Japan: A tale of two ecommerce platforms
Japan, where Amazon launched in November 2000, was one of Amazon’s earliest overseas markets (after Germany, the UK and France) and a market well-suited for Amazon to expand into. With a well-established urban infrastructure suited to deliveries, high internet penetration and a growing online B2C market, Japan was an ideal candidate for expansion into Asia that required little adaptation of Amazon’s established model.
Amazon’s major competitor in the region is Rakuten, a Japanese ecommerce company founded in 1997, and the two have strengths in different areas: Amazon is the go-to marketplace for books, electronics and everyday essentials, while consumers prefer Rakuten for food and fashion. Rakuten also has a well-established and popular customer loyalty programme, while Amazon’s Prime subscription service has seen slow uptake in Japan as same-day deliveries are generally the norm across the country.
The two have long been neck-and-neck in terms of ecommerce market share; Rakuten has the home turf advantage and is trusted by consumers, but Amazon scores highly on price and convenience, and is more able to absorb costs in a price war thanks to its massively profitable global presence. Rakuten, by contrast, has struggled to maintain an overseas presence; in May it announced it would be shutting down its global marketplace, Rakuten Global, to focus on its local offerings; this was followed in July by the announcement that it would be closing down its US arm, formerly known as Buy.com, 10 years after its acquisition. Rakuten still has an international presence in Germany, France, and Taiwan.
Amazon is now pushing into the fresh produce space, partnering with local supermarket chain Life to strengthen its grocery offering, which has had a mixed reception from Japanese consumers since its launch in 2017. Rakuten countered this move by partnering with Walmart for online grocery delivery. In 2018 Amazon also unveiled a major fashion studio in Tokyo to bolster its clothing sales, a market it has found difficult to break into.
Japan looks set to be a successful market for Amazon into the future, but Amazon would undoubtedly like to gain a more decisive lead over Rakuten by cracking Japanese grocery and fashion. As Japan is Rakuten’s primary market, however, it isn’t likely to concede any ground to its rival without a fight.
Southeast Asia: Uncharted territory
As of 2020, Amazon has no official presence across most of Southeast Asia. The one exception to this rule is Singapore, where Amazon has been slowly establishing itself beginning with the launch of Prime Now in July 2017, followed by the rollout of Amazon Prime in December, and culminating with the launch of Amazon.sg in October 2019.
Amazon deliberately launched Prime Now ahead of its full platform in Singapore – the first time it has done this in any region – choosing to emphasise fast delivery over profits and take advantage of Singapore’s urban infrastructure and connectivity as well as consumers’ comfort with online shopping. However, the launch was a bumpy one, with delivery slots rapidly selling out due to high demand and customers forced to turn to taxi drivers and private hire to deliver their goods.
In an interview with the Singapore Business Times, Henry Low Eng Kiat, Director & Country Manager at Amazon Singapore, called the timeline to profitability in Singapore “not something [Amazon] would project”, adding, “We are not in it to buy market share, but it is important that we are here building a sustainable long-term business.”
Which might be just as well, because Amazon has a way to go before it can compete with better-established rivals for market share. In October 2019, iPrice Group ranked Amazon in 12th place in a ranking of Singapore’s ecommerce players based on average quarterly traffic, mobile app ranking, social media followers and number of staff. Lazada, an Alibaba subsidiary, ranked top, followed by Qoo10, a Southeast Asian ecommerce company founded in 2010, and Shopee, a Singaporean ecommerce platform.
Unique regional challenges
Amazon will need to take on all of these competitors if it has any plans to expand across Southeast Asia, although so far, the ecommerce giant is keeping quiet about plans to launch elsewhere in the region. It may be eyeing Thailand as its next location, having opened an office there in April 2019 – its second in Asean after Singapore – in order to provide resources and training to Thai merchants on how to sell overseas on Amazon’s platform. According to the Bangkok Post, Amazon plans to develop its own in-house logistics operation and become “a one-stop solutions provider for sellers in Thailand”.
In 2018, Amazon also announced a major investment into Indonesia and the introduction of its cloud computing unit, Amazon Web Services, to the Indonesian market. Many analysts see Indonesia, with its population of more than 270 million and high rate of ecommerce use, as a logical next location for Amazon to expand into.
In Vietnam, meanwhile, Amazon has set up a support program to give businesses offline or online training in improving their export capabilities, and has launched its Global Selling Program in the region. Despite hinting at a potential expansion to Vietnam and acknowledging the demand for global sales among Vietnamese businesses, however, Amazon has not committed to a time frame for launching in the region, and industry insider Nguyen Ngoc Dung, deputy chair of the Vietnam Ecommerce Association, said in 2019 that he could not see Amazon launching in Vietnam in the next five years.
Amazon is no doubt waiting to see how its investment in Singapore plays out before it commits to any further expansion across Southeast Asia, but in the meantime, it can prepare the ground by establishing good relationships with local small businesses – a tactic that worked very well in India. Each Southeast Asian market has unique features and challenges, from expensive shipping logistics and a reliance on cash in Vietnam to a high level of ecommerce penetration but low spending value in Indonesia. Amazon will need to find a local strategy that works for it in each region if it is to succeed.
But it will also be expanding into a market well-served by competitors like Lazada, Shopee and Tokopedia. An analysis by Nikkei Asian Review (£) of Amazon’s prospects in Singapore noted that incumbents like Lazada understand that time spent on mobile apps in Southeast Asia correlates with profitability, and so these companies are pursuing a strategy of “shoppertainment”: a mobile-centric, highly social, entertainment-focused shopping experience.
China’s ecommerce landscape is dominated by similar hallmarks, with ecommerce services incorporating social features and entertainment in a way that is still unheard of in the west; Pinduoduo, in particular, has built its success around mastering what is being referred to as “interactive ecommerce” – an online, gamified and social shopping experience.
Chinese ecommerce giants like Alibaba have an inherent understanding of these trends, which means that Amazon may see itself outcompeted just as it was in China – unless it is able to understand and adapt to the unique hallmarks of the Chinese and Southeast Asian ecommerce market.
Conclusion
Unquestionably, Amazon has designs on establishing itself as a major player across Asia-Pacific, but this is not going to be a straightforward venture – or one without costs. Each market in Asia-Pacific has local players who are already well-established and understand the quirks of each region far better than Amazon does.
Amazon seems to understand that it needs to win over small and medium-sized businesses, convincing them that its arrival in the region is an opportunity rather than a threat. However, it also needs to establish consumer trust, which means learning from its failure in China and not simply trying to import a westernised business model into a radically different ecommerce environment.
Ecommerce vendors in the region will want to lean into what they do best – and their own knowledge of consumers and the local market – in order to fend off a potential threat from Amazon. The examples of Australia, China, Singapore and to a large extent India have shown that Amazon can’t expect an easy ride in Asia-Pacific. But its international clout and resources are not to be underestimated either.
The post Amazon in Asia-Pacific: A 2020 update appeared first on Econsultancy.
Source: Customer Experience