Amazon international expansion case writeup

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Amazon, the e-commerce giant in the US, is facing slow growth in international business. Although there is still growth in its international business, the growth rate has slowed down. From 2010, the percentage of international revenue has been declining. This report suggests that Amazon should not focus too much on those markets with fierce competition. Instead, it should pick the markets that are more feasible for Amazon to enter and then find more developing markets that are still growing. Amazon can then enter as an early market entrant.

First, the market in China has too much competition. In Q2 of 2017, Alibaba took 51.3% of market share and JD.com took 32.9%. These two added together already has the majority of the market and the other firms were all insignificant. Amazon only had 0.9%. In addition, to the Chinese, Alibaba is not only an e-commerce platform, rather, it is a one stop solution to many parts of our everyday lives. The Chinese prefer one app that can solve many problems instead of downloading many apps onto their phones. For example, Alibaba has its own online payment system that can be directly used after making a purchase. This closed-loop one stop solution for e-commerce is incomparable. Amazon in China has to cooperate with other banks or other online payment systems, paying their commission and decreasing efficiency. At the same time, Alibaba is already dominating the market with their own payment systems. This report suggests that for markets where there is little chance, Amazon does not have to pay too much attention.

Second, the market in India and Brazil can still be focused on because those two markets have a large market size and a considerable market share. Flipkart has a market share of 31.9% in India while Amazon had 31.1%. This showed that Amazon is still a major player and the market is still fragmented compared with the one in China. Therefore, Amazon at least still has a chance. The same reasoning applies for Brazil because the penetration rate is around 30%, leaving room for expansion and a larger market size. In Brazil, Amazon is competing with Mercado Libre and neither one is having a dominate advantage over the other. Therefore, it is still hard to say who can be the final winner.

The third strategy that this report recommends is for Amazon to start to explore other international markets. Even if some of the market still has a little internet penetration rate, Amazon can become an early market entrant and teach the market to move from traditional commerce to e-commerce because the world will ultimately transform from traditional commerce to e-commerce with the advancement of technology. It is only a matter of time before the rest of the world realizes that e-commerce will shape the future. According to the world ranking of retail e-commerce market sizes, the US, China, Japan, India, Germany, France, Russia and etc. are all leading countries in terms of market size. If Amazon cannot succeed in China, it should expand more into other countries. Although the initial cost will be high, and it will take many years for the residents to shift their consumption preference, the market will ultimately build up under the influence of internationalization. Whether the percentage of market share in a country will increase compared to the whole world does not matter as long as the own market size can grow. Take Russia for example, the current top e-commerce firms in Russia ranking suggested that the market is still fragmented with room for larger firms to take. This report suggests that Amazon cooperates strategically with one of the leading Russian e-commerce firms and start to build their presence. Whether through M&A or strategic cooperation, Amazon can learn more about a foreign country with a local firm and offer their own products in other countries.

The fourth strategy that this report will give is to leverage the operational efficiencies that Amazon did in the US and apply these strategies to other overseas countries. It can also cooperate more with local firms to know more about the country to reap higher market share. Amazon should cater to the local market more if it really wants to become an e-commerce giant in a foreign country.

Therefore, according to the four suggestions, Amazon should abandon or focus less on those markets that are very hard to compete. Amazon should develop more by catering to the local market in places such as Brazil and India. Last, but not least, Amazon should find other emerging markets to expand.

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