A good friend of ours, who worked at Amazon China’s data team during its heyday, told us a joke in 2015:

“According to the forecast our team just completed, Amazon China will expect a steady decrease of sales over the next four years, to its eventual demise.”

We laughed – it was no open secret that Amazon’s e-commerce business was already quite irrelevant in the highly competitive e-commerce market of China. Alibaba was no doubt dominating – other players such as JD and Suning were aggressive as well. In comparison, Amazon was lucid, steady, and uninspiring.

So it was no surprise to any of us that this week Amazon finally admitted it was shutting down domestic marketplace in China. In fact, some of our friends who were not in the e-commerce business were surprised – “oh they are still around?”

Project fade-away

There have been quite a number of analyses on why Amazon struggled in China. Although to us, the journey of Amazon’s China marketplace over the past few years seemed to be a controlled, planned, and kind of well-executed exit.

Bezos must have realised years ago that it would require an enormous amount of investment to reverse its fortunes in China – something that does not make sense to a lucid mind. (If you look at the whole history of Amazon, you would realise that Bezos is NOT a gambler).

So its management team in China offloaded some assets (including warehouses) to Cainiao (the logistics network of Alibaba) and Netease (which was rumoured to plot a more comprehensive collaboration with Amazon). It made some attempts to turn the remaining assets to an efficient logistics network, and it did try to re-focus on cross border offerings (as ultimately it has better global seller/brand network compared to its domestic competitors).

What it did not try was to make its marketplace work again.

Reasons for failure

Some of our friends asked Momentum Works what is our take on the reasons for Amazon’s failure. Ultimately, through acquiring Joyo, it was early in the game. Yes, eBay’s failure in China was already evident by then, but Amazon must have been smart enough to learn from them?

From our point of view, the key reason is still that the circumstances of the market in China are too different from Amazon’s core market in the US. This is manifested in a number of ways:

  1. Competition: major competitors used tactics that were plain absurd to lucid planners, including messy interfaces, the focus on discounts/subsidies/promotions instead of searches, recommendations and quality/authenticity.
  2. Priorities: if you noticed the point above, would you join the fray for the short term, or insist on building your core capabilities for the medium or long term? Amazon chose the later – the challenge here is that once you missed the short term, it would be hard to catch up.
  3. Inflexibility: how should a global company with a strong home market adapt to China, a market that is big enough and so different? To which extent should you trust what your local management is telling you? How do you make key decisions when the information coming from the market is not in line with what you usually see?
  4. Commitment: with all the above, how committed are you to the market? How determined you are to win the market despite strong local adversaries?
  5. Chinese sellers: By Amazon’s standards, many of them are just fraud, posting fake reviews and selling dubious origin product. Amazon’s competitors in China are much more ‘understanding’ to sellers’ concerns – and compared to US markets, these sellers have a choice to vote with their feet.
When you try to discipline Chinese sellers, this happens

Legacy for Amazon and others

Ultimately, Amazon is still regarded as a good brand in China – delivering good quality and genuine products from the globe. Its Kindle, AWS and Global Seller services are still seen as successes.

It has also trained a good, professional workforce which is now scattered across Amazon’s operations across the globe as well as other tech companies in China. (It seems the only company they avoid is JD.com, which they see as an inadequate Amazon clone).

As we explained before, Amazon’s failure in China was probably also the reason why it bet so heavily in places such as India and the Middle East.

Especially in India, Bezos simply does not want to lose a market as well as let a potential global competitor develop.

I am here to stay

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected].


Previous articleHalal is not about religion, but lifestyle
Next articleFacebook vs Instagram
Amresh used to cook and run food stalls. Stumbling into the tech industry by accident, he decided to stay for the long run. He joined Momentum Works in 2016 as a Project Manager. He is intrigued by ever changing internet businesses and its impact on day to day life. His interest lies in football, food and cryptocurrencies.