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Amazon taps China market through cross-border e-commerce

Amazon.com Inc. has changed tactics in its bid to challenge e-commerce rival Alibaba Group Holding Ltd. on its home turf, emphasizing cross-border transactions over local sales in China.

Highlighting this shift, Amazon picked Alibaba's base of Hangzhou, China, as the site of a sourcing fair it has scheduled for June 28 and 29. Amazon's event aims to connect more than 5,000 online merchants worldwide with 400 Chinese manufacturers of consumer electronics, kitchenware, apparel, bags, shoes, stationery, household products and auto parts.

Amazon's revised strategy could help it gain a long-sought advantage in the Chinese market. "As its growth bottlenecked in a market dominated by competitive local players, Amazon has been repositioning itself where its expertise lies," Zhouping Zhang, a senior analyst with the China E-commerce Research Center, said in an interview with S&P Global Market Intelligence.

Amazon is a dominant force at home, responsible for about 44% of all e-commerce sales in the U.S., according to analytics firm One Click Retail. But in China, Amazon only accounts for about 1% of the business-to-consumer online retail sector, data provided by the China E-commerce Research Center showed. Meanwhile, Alibaba and its fellow Chinese e-commerce player JD.com Inc. have about 80% of China's market share combined.

Seattle-based Amazon entered China in 2004 through the acquisition of local online book retailer Joyo.com, which was rebranded in 2011 as Amazon China with more than 15 product categories including electronics, food, cosmetics and apparel. It was barely noticed by Chinese consumers, who were already embracing local e-commerce platforms such as Alibaba's highly popular Taobao marketplace.

Unable to crack the market through online retailing, the company is now pushing Amazon Global Selling in China instead. The service launched in 2012 and enables Chinese vendors to open stores on 10 of Amazon's overseas sites, including those in the U.S., U.K., Japan and Australia, accessing 300 million active users. Its upcoming Hangzhou fair follows a number of sourcing and network events that Amazon has hosted in recent years for Chinese manufacturers and merchants.

Cross-border e-commerce using Amazon Global Selling is now one of the company's four core strategies in the Chinese market, according to a press release from Amazon China. The other three are centered on Kindle, Amazon Logistics and Amazon Web Services.

Amazon Global Selling China could not be reached for comment by S&P Global Market Intelligence.

China's thriving export e-commerce industry also plays a role in Amazon's focus on producers, Zhang said. In 2017, the total transaction volume of China's outbound cross-border e-commerce amounted to 6.3 trillion yuan, a 14.5% increase from 5.5 trillion yuan in 2016 and a nearly 230% surge from 1.9 trillion yuan in 2012, according to China E-commerce Research Center data.

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"E-commerce is becoming an increasingly important export trade format for China, where manufacturers face rising costs and sliding profit margin," Zhang said.

The flourishing sector has already attracted Alibaba, which in 2010 rolled out AliExpress, a business-to-consumer marketplace that now serves more than 100 million foreign buyers in 224 countries and regions. Other local players include Wish, Bestek and Globalegrow E-commerce.

Despite the strong competition, the market's huge potential can still accommodate Amazon Global Selling, according to Xiaobin Luo, a consultant with Shenzhen-based YQDS E-commerce, which offers consultancy and training programs on cross-border operations.

"Amazon Global Selling has advantages in developed markets such as North America, Europe and Japan, and has gained popularity among sellers based in southern China," Luo said in an interview. "AliExpress, on the other hand, is more focused on emerging markets like Russia and Brazil, and accumulated its seller base in China's eastern provinces. Amazon's program has a stricter threshold to open shops."

Amazon Global Selling revealed at a recent industry conference in Beijing that it counted approximately 100,000 Chinese sellers that had opened shops as of 2017-end, according to a May 30 report by Beijing Business Today.

Internet technologies can directly connect Chinese sellers with overseas buyers, thereby reducing intermediaries and transaction costs while increasing convenience, Zhang said. "The transparent sale process allows sellers to have more pricing power in global trade. With a bigger market and better profit, they are more incentivized to build their own brands."

To support continued use of outbound e-commerce in promoting international trade, the Chinese government has launched several initiatives such as constructing an "Online Silk Road" between multiple partner countries to enhance digital connectivity and improve the flow of cross-border goods.

Meanwhile, Luo noted that the merchant profile on cross-border e-commerce platforms has been changing in recent years. "It started out with mostly basic consumer electronics like extension sockets and USB ports, but in the past one to two years we are seeing more high-tech products like unmanned drones and proprietary brands," the consultant said. "It's a positive sign that the sector is progressing forward and upward."

However, there is still more work to be done by Amazon and other players in cross-border sales. "Chinese sellers still have a lot to learn when joining in international competition," Luo said. "The biggest risks they face now are operational risks related to areas such as intellectual property rights, product compliance and customer experience."

As of June 8, US$1 was equivalent to 6.41 yuan.