Lessons from Amazon's Retreat from the Chinese Market

Amazon's management of its e-commerce business in China could be described with a term that is still relevant today - "Zen" management.

However, Amazon's Zen management approach in China diverged from the fact that the Chinese e-commerce competition was fierce, and this Zen management style also showed a somewhat "lack of initiative." Over time, the result was that Amazon announced on July 18, 2019, that it would stop providing services to third-party sellers on its Chinese website, effectively ending its e-commerce operations in China. This international e-commerce giant, which had been in the Chinese market for 15 years, marked its departure.

Going back to the origins, Amazon's story in China began in 2004. At that time, platforms like Taobao and JD.com were still exploring the survival rules of the e-commerce market. Amazon, with the title of "America's largest e-commerce company," had already entered China and acquired Joyo.com. Just when many thought Amazon would stir up a storm in the Chinese e-commerce market, Amazon responded to the market with thunder but delayed rainfall.

Either burst forth in action, or be extinguished in silence

In 2004, Amazon acquired Joyo.com for $75 million. At that time, Alibaba's Taobao had been established for less than two years, and the battle between Taobao and eBay was still ongoing. Amazon had ample time to seize the market, yet it kept delaying until it finally integrated Joyo.com's platform three years later.

Over the next 15 years, the Chinese e-commerce market underwent monumental changes. Alibaba and JD.com emerged as leaders in the e-commerce field, while cross-border e-commerce platforms like Vipshop, Netease Kaola, and others rose and stabilized. Notably, there was also the underdog Pinduoduo, which successfully made its way to the forefront within three years. The e-commerce track became crowded with players, and the competition remained as fierce as ever.

However, Amazon China seemed like a bystander, lurking in the e-commerce market for 15 years without making significant moves. It appeared that Amazon China had never truly entered the battle. Yet, the phrase "either burst forth in action, or be extinguished in silence" held true, and Amazon China eventually took the latter path. It's a bit regrettable, but even more unfortunate is that Amazon seems to have left without taking much away.

Public data shows that in terms of market share in the Chinese e-commerce market, Amazon China held a peak market share of 15.8% in 2008, which was the only high point for Amazon China. After that, its market share gradually decreased year by year, with figures from 2012 to 2018 as follows: 2.30%, 2.70%, 1.50%, 1.20%, 1.30%, 0.80%, 0.60%.

When Amazon's e-commerce market share dropped to 0.60%, Tmall, JD.com, and Pinduoduo held market shares of 55.00%, 25.20%, and 5.70% respectively. The data clearly illustrates that Amazon China was being squeezed by the aggressive players in China's e-commerce landscape. The space for Amazon China's development was shrinking, while the tripartite dominance formed by Alibaba, JD.com, and Pinduoduo was becoming more stable.

The continuous decline in market share forced Amazon China to reconsider its options. Instead of struggling to survive in China, it seemed more reasonable to expand its presence in other countries. Thus, Amazon set its sights on the Indian market, likely aiming to take advantage of the relatively immature e-commerce landscape in India to compensate for its regrets in the Chinese e-commerce market.

Turning the conversation back, in the context of the Chinese e-commerce market, the only constant is change itself. Amazon China's retreat is indeed related to its lagging market awareness. In fact, its sluggish understanding of the Chinese market can be traced back quite some time.

Noble status doesn't align well with aggressive market competition

If we consider Amazon's entry into China as a time of blue ocean opportunity in the market, it's noteworthy that Amazon went from a blue ocean to a red ocean, and in this market where it should have thrived, it eventually "sank." Interestingly, opinions about Amazon's big retreat in China vary widely, with some even jesting that "Amazon China was just Jeff Bezos' trial and error cost in China. After all, Amazon's headquarters is wealthy, and losing one Chinese market doesn't affect Amazon's international ranking."

While it's a jest, it holds some truth. The core audience of e-commerce services is the consumers, and Amazon didn't seem to pay enough attention to Chinese consumers. Fifteen years is enough time for an infant to grow into a teenager, and similarly, Amazon had ample time to understand Chinese consumers during its 15 years in China. However, Amazon China appeared to exhibit more of a dismissive attitude.

It's well-known that Amazon holds substantial brand influence in the United States, indicating unquestionable business prowess. Thus, Amazon attempted to directly replicate its American approach in China, standing tall with a high posture. However, its American-style website design and the lack of marketing tailored to Chinese festivals left many domestic consumers disappointed. This reflects that Amazon China did not conduct sufficient market research.

Meanwhile, during that time, companies like Alibaba and JD.com created various promotional festivals to cater to the cost-sensitive preferences of Chinese consumers. Examples include Tmall's Singles' Day (Double 11) and JD.com's June 18 (618). These market effects were a result of thorough market research and further elevated the commercial value of Alibaba and JD.com.

To be honest, the aggressive strategy of low-price promotions indeed seemed wild and intense, but it was aligned with the demands of Chinese consumers. However, Amazon's noble image appeared incompatible with such aggressive market tactics. Unwilling to engage in "downgraded" competition, Amazon China chose to observe the promotional competition from the sidelines. As a result, Amazon missed the opportunity to directly compete with domestic e-commerce players in the market. Avoiding competition also meant that Amazon China forfeited the chance to dominate the Chinese e-commerce market.

Moreover, blindly applying Amazon's strategies from the United States caused discomfort among Chinese consumers and prevented Amazon from understanding and addressing the core needs of the Chinese market.

Conservative mindset and failure to grasp the core of consumer spending

Furthermore, Amazon China held misconceptions about consumer behavior. The market is evolving, and so are consumers. In the past, consumers might have actively sought out products to fulfill their needs. However, times have changed. With the continuous improvement of internet recommendation mechanisms and the evolution of consumer attitudes, modern Chinese consumers prefer product recommendation systems.

Moreover, for local e-commerce platforms, the objective is not limited to merely satisfying existing consumer needs. Their true goal is to create demand and generate a continuous stream of needs. Unfortunately, these aspects were lacking in Amazon's approach, and they were absent in the various CEOs Amazon China had over the years.

As reported by Interface News, Zhang Jun once stated, "Amazon's core principle is to have consumers actively search for things to fulfill their needs, and this has always been our unchanging purpose." This statement reflects Amazon's steadfast commitment to its "meet the demand" strategy, which also implies that Amazon wouldn't emphasize guiding consumers towards specific brands.

One wrong step leads to another. Amazon's conservative values clashed with the consumer attitudes that had been shaped by the likes of Taobao and JD.com in China. Creating user demand has become the norm in the domestic e-commerce market. Consequently, in the era of e-commerce live streaming and PUGC (User-Generated Content) by e-commerce influencers, Amazon found itself out of sync. It didn't engage in live streaming, and even the product descriptions were limited to simple text and images, lacking the appeal of domestic e-commerce platforms.

In summary, the main reason for Amazon's retreat from China was its insufficient understanding of Chinese consumers and its inability to adapt to the changes in the Chinese e-commerce market. Amazon's exit from China serves as a lesson for foreign e-commerce companies still operating in China.

The Lessons Learned from Amazon's Retreat from China

"True warriors dare to confront the harshness of life," and Amazon, this American warrior, is now facing a market share of less than 1% in the Chinese e-commerce market. From avoiding market competition to losing touch with user demands, Amazon has been gradually retreating from the Chinese market. For the Chinese e-commerce market, Amazon arrived early but departed with nothing to show for it.

As we lament Amazon's exit from the Chinese e-commerce market, there are several lessons to be learned from its retreat, which can serve as insights for other foreign e-commerce companies still operating in China.

First, strategies should be adapted to local conditions. No one denies Amazon's success in the American e-commerce market, but what worked in the U.S. became a vulnerability in China. The consumption mindset of American consumers differs from that of Chinese consumers, affecting marketing strategies and website design. Therefore, foreign e-commerce companies, when devising market strategies, should tailor their approaches to consumers' habits and preferences, adapting their strategies accordingly.

Moreover, many foreign companies often experience a slowdown in market feedback when entering new markets due to a reluctance to delegate authority. This is a common problem among foreign enterprises and was also a challenge for Amazon. Despite being present in China for 15 years and undergoing several changes in China CEOs, Amazon didn't change the fact that China was seen as an operational center rather than a decision-making center.

Therefore, foreign e-commerce companies that aim to gain a foothold in the Chinese market need to trust, empower, and adapt their strategies in real-time based on market changes. They should understand that being overly cautious and restrictive might lead to missing the prime period for development.

Secondly, speed up localization efforts. On one side, companies like Alibaba, JD.com, and Pinduoduo are fiercely competing with low prices and aggressive advertising. On the other side, Amazon is calmly observing their battles without a sense of urgency. The outcome is predictable: Alibaba, JD.com, and others have written legendary tales in the Chinese e-commerce arena, while Amazon, maintaining a silent stance throughout, ultimately withdrew from China. It's not that Amazon China deliberately moved too slowly; it's that others moved too fast.

Speed is crucial in all endeavors. Foreign companies entering the Chinese market should "do as the Romans do" and adapt to the methods of the Chinese e-commerce market. Discounts, promotions, marketing festivals, and other beneficial tactics are highly appealing to Chinese consumers. Therefore, foreign companies can only establish their brand awareness quickly by localizing swiftly, stimulating consumer demand in line with their mindset.

Thirdly, let go of arrogance and biases. When Amazon initially entered the Chinese market, it had a significant advantage, as Alibaba and JD.com hadn't yet become giants. However, Amazon underestimated its competitors. Despite its international significance, Amazon held a lofty posture and was unwilling to engage early-stage Taobao and JD.com in direct competition. This gave Taobao and JD.com ample time to grow amidst the competition.

Therefore, underestimating competitors with an arrogant attitude is a taboo in the business world. Whether foreign or local companies, it's crucial to abandon biases against competitors and consumer needs. Lowering one's stance to adapt to the market is the key to establishing a presence in the Chinese e-commerce market.

Summary

Amazon's retreat from China can be attributed to a lack of understanding: a lack of understanding of the changing dynamics of the Chinese e-commerce market, a lack of understanding of evolving consumer needs in China, and a lack of understanding of Amazon's actual position in the hearts of Chinese consumers. Therefore, foreign e-commerce companies that are still operating in China should take note. The departure of giants is not due to insufficient capability, but rather the unwillingness to let go of pride and engage in direct competition. This is what ultimately leads to a hasty exit.

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