The root cause of Amazon’s failure in China

This article is contributed by someone who worked with Amazon’s China team for a number of years – he is currently based in Beijing, where he leads a fast-growing tech startup. He prefers to be anonymous but accepts feedback through the TLD team ([email protected]).  

So Amazon failed in the race for ecommerce dominance in China. Everyone knows that and a lot of analyses have been written about it. 

Some of these analyses, predictably, blamed “communist China’s” protection of local players, which I believe is groundness. Others are pointing to more real issues: failure to adapt to Chinese consumers’ tastes; refusal to match the offerings of local competitors; the user experience; and overly focus on trust than product variety. 

I even noticed that Momentum Works team also posted an analyses on the subject matter, and I kind of liked the headline: Amazon’s planned, controlled and well-executed demise in China

Although the author did not elaborate in the article, I think the headline is spot on. 

Predictable and predicted demise

As a company, Amazon is insanely logical and very strong in execution. That is good because once the juggernaut is rolling towards the right direction, it could crush all the roadblocks and sweep away all the competitors. 

There is a caveat though. For these types of companies, when you are going on the right track, you become bigger and bigger; but when you are on the downward trend, your system actually forces you to shrink smaller and smaller. 

What does it mean? Well, when you predict that your sales are going to shrink, a rational approach (which Amazon adopted) is to reduce your inventory, warehouses and other infrastructure to rein in cost. 

While that approach is the most rational, it inevitably makes it impossible to reverse the ‘shrinking sales’ trend. 

Self-fulfilling prophecy that is. 

So predictably, the company (in China) makes logical steps to its own demise. Precisely as the person quoted in the previous TLD article said: 

“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.”

When you are extremely rational, you will find it very hard to comprehend counter arguments that are not backed by solid data or evidence. 

Learn and be curious

Which is also fair – because that requires you to make a decision, based on things you can’t blame others for, but a decision you ultimately have to be responsible for. 

If you are a professional manager, there is no incentive for you to take that risk. Ultimately China was a small business for Amazon back then – not worth it while you have better opportunities elsewhere in the group. 

This is exactly the reason why Alibaba is failing many of its oversea ventures, and many other Chinese internet majors (including Kuai, JD, Baidu etc.) find it hard to crack markets outside China. TikTok is a notable exception in this. 

As for Bezos, the fact that China never became a big market meant that he probably never lost sleep over the failures in China. This is unlike India while Amazon is already big and so many are at stake. 

Things you have at hand that you might lose are always worth more than things you are yet to gain (but can be potentially more lucrative). 

I think Amazon must have realised this cultural issue – that’s probably why “learn and be curious” was added to the company’s Leadership Principles.