Amazon retreats from China

A few days ago, I heard the rumor from a single Asian news source (Technode) that Amazon is retreating from their Chinese operations.  I was in shock, dismay, and did not believe what I heard until it was verified by large western media outlets.  

Statistics

According to recent statistics from emarketer, China is the largest retail marketplace in the world with revenues topping $5.6 trillion and China continues to grow at double the pace of the United States.  

In addition the Chinese online marketplace is the most developed in the world and expected to bring in close to $2 trillion in annual sales for 2019, which represents 35% of their total revenues.   In comparison the United States online revenues are only 11% of total retail revenues or $550 billion.  

In regards to the global scale, China represents 55% of all online sales, which is expected to grow to 63% by 2022 as the United States e-commerce is expected to retreat by 15% for the same period.  

Back in 2015, I published an article about selling in China and your GTM (go-to-market) strategy on LinkedIn and on my Blog, I looked at: 

  • Failures, corporations that came and left
  • Attempts, corporations on the discussion to enter the market
  • Existence, corporations with a presence
  • Successes, corporations that are flourishing

China Challenges

Amazon is not fully retreating from selling in China, but has decided to stop selling Chinese products and will only offer foreign products for sale in China. 

It is well known that Chinese corporations are favored in the Chinese marketplace.   They get preferential treatment when dealing with the government and operating in China.  Chinese companies have the advantage of understanding the Chinese people;

  • The 56 dialects
  • The cultures
  • The acceptable business practices
  • The nuances 

I can see the huge opportunity as a foreign business, as local Chinese people from established cities tend not to trust products made in China.  As there is:

  • A lot of copied products, not always identified as copies
  • Trusting the authenticity of brand names produced in China, not only for the Chinese marketplace but on a global scale
  • The quality standards are not as good as foreign companies, especially for the same made in China products  
  • The foreign products can vary from the domestic products
  • A better quality item may be sold at a lower price to attract more price-sensitive consumers  
  • Fake reviews of products 

Back in 2010, Walmart retreated from China, as it could not accept the business practices of local Chinese and handed over the management of its sourcing business to Li & Fung. 

By 2012 Walmart discovered they were not getting the economy of scale and retreated from its business with Li & Fung as they wanted more control of their products.

Conclusion

Many small, medium and large corporations struggle to understand the Chinese marketplace and opportunity.   What is acceptable in China is usually not acceptable in your country.  It is not only a problem with China; it is a global business practice. 

As Donald Trump has expressed, he would like a “more level playing field” for foreign U.S. enterprises in China.   It is happening but at what pace, how far, and how fast are the changes being implemented?  Who is making all the decisions?  What are their insights, expertise, and experience? 

I have a passion for the industry and enjoy being involved in the analytics, algorithms, systems, processes, and performance measures to help grow businesses in the Asian marketplace.   

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