What Amazon's rare defeat in China could mean for its tough slog ahead in India

Whether Amazon will be able to use its experience in China to combat Reliance's exhaustive digital backbone and web, which connects millions of India's small grocery shops, will determine if its India experience goes the China way.
Written by Rajiv Rao, Contributing Writer

Is it possible that the almighty Amazon, global dominator of all things retail and pulveriser of hapless competitors, has finally conceded defeat in China? It certainly seems that way, as the US-based global e-commerce Goliath announced it would bring the curtain down on its Chinese marketplace business in July and will revert to offering only overseas products to domestic Chinese customers.

"We are notifying sellers we will no longer operate a marketplace on Amazon.cn, and we will no longer be providing seller services on Amazon.cn effective July 18," the company said in an email sent to CBS MoneyWatch. "Sellers interested in continuing to sell on Amazon outside of China are able to do so through Amazon Global Selling."

However, the company said that it would continue to keep the lights on for its other offerings such as Amazon Web Services (AWS), Kindle e-books, and cross-border shipping services that help send products from Chinese merchants to customers abroad.

How did a company that has dominated the online retail trade globally get turfed out so unceremoniously in the largest retail market in the world? And what does it mean for Amazon's success in the next biggest retail opportunity in a country that it is so desperate to win in?

In China, a country that it entered in 2004, Amazon had transplanted its US model whole-hog without bothering to see if there were any cultural and consumer differences that would necessitate a different approach to the retail game. Amazon ignored the fact that Chinese consumers were already spoiled silly with very low and frequently free shipping on orders, and it required consumers to reach minimum spends to get shipping subsidies. This didn't impress Chinese consumers as they flocked to Alibaba's TMall and JD.com instead. 

There were also failures, or perhaps a lack of will, to localise. While its Chinese competitors networked with smaller vendors to boost their businesses and utilise smaller delivery firms, Amazon decided to go the more familiar route, building 15 fulfilment centres as well as a domestic supply chain infrastructure that increased costs enormously. Meanwhile, fierce competition between domestic Chinese sellers, who were supplying its rivals, saw them forced to innovate in product and delivery.

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Website and app design followed a similar story -- the Chinese interfaces were flashy and colourful and found resonance with local shoppers, while Amazon continued to roll out the minimalist designs preferred by its Western audiences. Amazon also refused to launch its own payments system while digital payments were exploding in China. While its users had to use cumbersome credit cards, rivals used the enormously popular Alipay, owned by Alibaba, also the owner of TMall, or WeChatPay, launched by leading social media app WeChat, that made shopping for anything a seamless and extremely easy process.

Most importantly, Amazon refused to adapt to local conditions despite ample evidence that screamed at it to do so.

15 years later, Amazon's shockingly woeful China market share tells its own story: Amazon weighs in at 1%, while rivals Alibaba's TMall commands 61.5% and JD.com 24.2% as of Q4 2018.

This is not to say that the company hasn't learned from its fatal China missteps about localisation and customisation. It has worked assiduously with local businesses, suppliers, and retailers in India, learning the cultural landscape while helping business owners take their stores online. However, it continues to negotiate some pretty nasty curveballs. Just as it settled down to try and win the two-horse race with Walmart, which had just gobbled up India's largest online retailer Flipkart for $16 billion, the Indian government decided to implement the 2016 Note in late December, an addendum to India's major e-commerce rules that it had largely ignored until now. 

Since its implementation, it has been sheer chaos. Walmart and Amazon have been forced to go from a warehousing model to a marketplace one in the blink of an eye. Amazon had originally anticipated this by creating a functioning work-around through its subsidiaries, Cloudtail and Appario, which would function as "sellers" on its platform to thereby comply with the original rules. However, even that door was emphatically slammed shut by the government as the new rules stipulated that foreign-owned e-commerce entities could no longer operate and invest in sellers. The last few months have been an agonising and exhausting period for both companies as they rush to deal with compliance issues.


The failure in China means that Amazon, as rumour has it, is now firmly focused on India where it has spent $5 billion and wants to do more. Its immediate competitor is Walmart's Flipkart. Yet, the more menacing retail threat to it, one that is gaining more momentum day by day, is Mukesh Ambani's Reliance.

Reliance is in almost every industry you can think of. In under half a decade, it has fashioned itself as one of the biggest telecom companies, broadband internet suppliers, entertainment and news giants, as well as the biggest offline retail chain that is working towards an online launch very shortly. With the upcoming online launch, it is looking like it will -- judging by what it has done to data rates -- wrap all of these offerings up in the most lip-smacking and hard-to-resist packaging known to Indians.

Ambani's coup-de-grace will be a digital network that connects to the tens of millions of mom-and-pop "kirana" neighbourhood stores dotted around India. As we speak, Reliance is putting the final touches on its retail launch -- an onslaught that could have Amazon on the ropes. It is apparently also trialling a grocery app among its employees, which would be a potential game changer considering groceries account for two-thirds of retail spend and Ambani's networks will connect them all of them to him.

So Amazon will not only have to compete with one of the biggest monopolies in this new era of business -- sound familiar, Amazon? it will also have to duke it out with another company closer to home; one that doesn't have any shackles on investing in sellers or logistics companies since Reliance is majority Indian-owned. Reliance will benefit hugely from running its own warehousing and logistics just as Amazon does in most parts of the world.

Bezos will need to dig hard and deep into his bag of tricks to compete with India's richest businessman, and if China has taught him anything -- be it in payments, logistics, website design, or anything else -- the most obvious one would be adapt or die. 

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